The Australian dollar fell today after the Reserve Bank of Australia raised interest rates by an expected 25 basis points but sounded less hawkish than some had bet on.
At the today close, the dollar was trading at $US0.9032, after slipping as low as $US0.9007 in the wake of the rates decision, off an intra-day high of $US0.9092 as investors sold on the fact. Yesterday the dollar closed at $US0.9047.
The Aussie ended the day slightly higher against the yen, rising to 81.54 yen, from 81.46 yesterday.
Markets are now wavering on bets for rates to rise to 3.75 per cent next month after the RBA said it was prudent to "gradually" loosen policy.
"Some investors were disappointed because the RBA wasn't as aggressive as expected," said Peter Jolly, an analyst at National Australia Bank. Rates stood at 3.50 per cent after Tuesday's rise.
The dollar is now hovering near the floor of an eight-month long upward trend channel. The daily MACD chart for the Aussie signals the currency may come under more selling pressure, but the weekly chart suggested any softness was temporary.
December interbank futures jumped 0.10 points to 96.36, showing an implied rate of 3.64 per cent. The implied rate stood at 6.76 per cent before the RBA rate decision was announced.
One-year overnight index swaps slumped to 4.37 per cent, from 4.54 per cent before the RBA decision. That was the largest one-day fall in absolute terms since September.
Bond futures rallied. The three-year contract jumped 0.14 points to 95.01, and 10-year bond futures added 0.08 points to 94.53.
A comparison of the RBA's statement on Tuesday showed it was little different from that published in October.
In both statements, the RBA noted the rise of the Aussie, and said it was "prudent" to "gradually" ease policy.
Among the most striking differences were comments on Tuesday that unemployment should peak at a "considerably" lower rate, and that inflation would stay within target in 2010.
Most analysts agreed the RBA's cautious tone signalled it is not inclined to lift rates by 50 basis points in December. Some noted it has never in the last 20 years raised rates over three consecutive months.
But analysts' predictions came with a caveat - the strength of this month's economic data reports would shape the RBA's call.
"Officials are inclined to take each meeting on its merits," said Stephen Walters, an analyst at JPMorgan. "This leaves open the door for the RBA to pause if there is a weak patch of domestic or offshore data."