The Australian dollar drifted lower on Tuesday after the country's central bank sprang no major surprises after its April policy meeting, leaving its U.S. counterpart to benefit from higher bond yields.
The neutral tone came just hours before the country's conservative government is expected to release an annual budget embellished with tax breaks and infrastructure spending, stimulus that might lessen the need for rate cuts this year.
The Aussie dollar AUD=D3 was off 0.4 percent at $0.7082, as its U.S. counterpart gained in the wake of strong U.S. factory data which sparked a steep rise in Treasury yields.
The surprising resilience in U.S. and Chinese data also helped counter fears of a global recession and underpinned commodity prices, giving the Aussie a lift on the yen and euro.
The Aussie stood at 78.95 yen AUDJPY= , but again shied away from major chart resistance in the 79.40/80 zone which has defeated every rally so far this year.
The Reserve Bank of Australia (RBA) ended its April policy meeting with rates stuck at 1.5 percent, where they have been since mid-2016.
The central bank did drop a previous call for 3 percent economic growth this year, following disappointing data for late 2018, but reiterated that the jobs market remained strong.
There was also a change to the final paragraph of its statement, adding a line that the board will "continue to monitor developments and set monetary policy to support sustainable growth in the economy."
Yet the RBA stopped far short of adopting the explicit easing bias of the Reserve Bank of New Zealand (RBNZ), which startled markets last week by stating the next move in rates would likely be down.
"Presumably the RBA can still see scenarios where interest rates may rise. Or fall," said Michael Blythe, chief economist at CBA.
"The proximity to the Budget serves as a reminder that Australian policy makers have other options," he added. "Fiscal settings can be adjusted and income tax cuts are likely. Income tax cuts are the better choice for dealing with consumer risks."
Details of the budget are due out at 0830 GMT. Interest rate futures
0#YIB: had slightly lengthened the odds of an early rate cut following the firmer economic news in the U.S. and China, and were now fully priced for an easing in October instead of August.Australian government bond futures were mixed, with the three-year bond contract YTTc1 up 1 tick at 98.640. The 10-year contract YTCc1 dipped 2 ticks to 98.1750.
The New Zealand dollar NZD=D3 had eased to a three-week low at $0.6771 after a disappointing survey of business confidence reinforced expectations of policy easing there.
A net 29 percent of firms surveyed expected general business conditions to deteriorate, compared with 17 percent in the previous quarter.
