The Australian and New Zealand dollars retreated on Tuesday as policymakers in both countries reminded markets of the risk of rate cuts, nudging bond yields lower.
The Aussie dollar AUD=D3 slipped 0.4 percent to $0.7146 and away from a six-week peak of $0.7193, hit last Friday in the wake of solid Chinese data.
The kiwi dollar NZD=D3 eased back to $0.6752, from a top of $0.6782 on Monday. Charts show support coming in around $0.6714/20.
Australia's central bank believes a cut in interest rates would be "appropriate" should inflation stay low and unemployment trend higher, though there was no strong case for a move in the near term.
Minutes of its April board meeting, released on Tuesday, showed Reserve Bank of Australia (RBA) policymakers acknowledged the economic effect of ever lower rates could be smaller than in the past, given high household debt and crumbling property prices.
Yet easing would still have some stimulative effect, in part by causing a likely decline in the Aussie.
With other central banks around the world turning dovish in recent months, the RBA has come under pressure to follow, simply to stop its currency from rising and hurting exports.
The RBA's board also agreed that a hike in rates anytime soon would be unlikely given inflation remained so subdued. Consumer prices for the March quarter are due next week and could well show the inflation rate slowed further.
"A modest disinflationary pulse looks likely in early 2019," said Su-Lin Ong, heads of Australian fixed income strategy at RBC Capital Markets. "We think that the RBA's pain threshold for the unemployment rate that will trigger rate cuts is 5.25-5.5 percent."
The jobless rate surprised in February by dipping to an eight-year low of 4.9 percent, but median forecasts are for a rise to 5.0 percent in March. The data is due out on Thursday and will be a major event for markets.
"The RBA reminded us that rate cuts still work even with some challenges," added Ong. "As was the case in 2015 and 2016, the onus will be on the data to push the Bank to cut."
Investors have been wagering on an easing for a while and futures
0#YIB: are full priced for a quarter-point reduction by October, with July around a 50-50 shot.Australian government bond futures rose, with the three-year bond contract YTTc1 up 3 ticks at 98.575. The 10-year contract YTCc1 firmed 2.5 ticks to 98.0650.
Across the Tasman, New Zealand's central bank governor Adrian Orr told Reuters an easing bias remains in place for now and a softer global economy contributed to a recent shift to a dovish policy tone.
At its last policy review in March, the Reserve Bank of New Zealand (RBNZ) stunned markets by clearly stating that the next move in rates would likely be a cut.
When asked if the central bank is maintaining its easing bias, Orr told Reuters "it remains, but it remains to be challenged by the data that we have seen."
The governor also said the kiwi dollar is trading around a "happy space", having slipped since the March policy meeting.
