By Rae Wee
SINGAPORE, April 4 (Reuters) - 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. 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.
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(Reporting by Rae Wee; Editing by Sam Holmes and Edmund
Klamann)
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