Aussie tumbles after RBA pauses rate hikes, dollar rebounds

SINGAPORE: The Australian dollar slipped on Tuesday after the central bank held interest rates steady, while the greenback regained some of the ground lost when data showed a slump in U.S. manufacturing activity.

In a closely watched monetary policy decision, the Reserve Bank of Australia (RBA) on Tuesday left its cash rate unchanged at 3.6%, breaking a run of 10 straight hikes as policymakers said additional time was needed to "assess the impact of the increase in interest rates to date and the economic outlook".

The Aussie fell as much as 0.4% following the decision and was last 0.3% lower at $0.6766.

"(The RBA) seem content that inflation has peaked and opted to not pull the hiking trigger ahead of the quarterly inflation report in a few weeks," said Matt Simpson, senior market analyst  at City Index.

"Unless the RBA are presented with a surprise uptick on the quarterly inflation print, I think the RBA will be happy to sit with 3.6% for the next two to three months."

In the broader market, the dollar reclaimed some lost ground during the Asian trading session after Monday's tumble, which was driven by data pointing to a further slowing of the U.S. economy.

The Institute for Supply Management (ISM) survey showed on Monday that manufacturing activity fell to the lowest in nearly three years in March as new orders continued to contract, with all sub-components of its manufacturing PMI below the 50 threshold for the first time since 2009.

That sent the greenback broadly lower, tracking a slide in U.S. Treasury yields, as investors pared expectations on how much longer interest rates would need to remain in restrictive territory to tame inflation.

The British pound and New Zealand dollar hit multi-week highs in early Asia trade on Tuesday, though subsequently pulled back.

Sterling was last 0.05% lower at $1.2410, having touched its highest since late January earlier in the session, at $1.2425.

The kiwi rose 0.2% to $0.6310, its highest since mid-February, and last stood at $0.6301.

Against a basket of currencies, the U.S. dollar index rose 0.17% to 102.20, reversing some of Monday's more than 0.5% fall.

"The ISM manufacturing report for March was a dud," said economists at Wells Fargo. "The closest thing we get to good news in (the) report is that the slowing in the factory sector is pushing prices lower and supply chains are continuing to heal, benefiting from the slack.

"Beyond that, the rest of the themes were those that often precede an economic recession."

The euro fell 0.11% to $1.0891, having gained 0.56% on Monday. Against the Japanese yen, the dollar rose 0.29% to 132.84.

Futures pricing shows markets expect the Federal Reserve to begin cutting rates as early as September through the end of the year, with rates seen just above 4.3% by December.

The two-year Treasury yield, which typically moves in step with interest rate expectations, was last at 3.9738%, having fallen nearly 10 basis points on Monday. [US/]

The sluggish U.S. economic data overshadowed renewed inflation fears after the OPEC+ group jolted markets with plans to cut more production, which sent oil benchmarks jumping 6% on Monday.

"Apart from the direct cost impact of the 6-7% jump in oil prices, economic headwinds are also posed by the prospects of stickier inflation prolonging the global tightening cycle (and) intensifying policy trade-offs," said Vishnu Varathan, head of economics and strategy at Mizuho Bank.