SYDNEY, Oct 20 (Reuters) - The Australian dollar eased to a
three-week low on Tuesday as the country's central bank edged
closer to buying longer-dated government debt, in part to put
downward pressure on both yields and the local currency.
The Aussie dipped to $0.7042 - below chart support
at $0.7054 and opening the way for a test of the September
trough at $0.7004.
The New Zealand dollar also slipped a little to
$0.6584, but remained above support at $0.6574.
The Aussie had already been burdened by global risk aversion
when minutes of the Reserve Bank of Australia's (RBA) last
policy meeting confirmed the Board had discussed cutting rates
and buying longer-dated debt as a means to support the economy
and restrain the currency.
"The minutes give a green light to further monetary policy
easing by the RBA at its November Board meeting," said CBA
economist Belinda Allen.
She, and the market, expect the cash rate to be cut to 0.1%
from the current 0.25% and the bank to extend bond buying out to
the five to 10-year sector of the yield curve.
"We think the RBA will announce a quantitative easing (QE)
programme of at least A$100 billion," said Jack Chambers, a
rates strategist at ANZ. "We think the programme will run until
June 2021, and will likely be extended thereafter."
Purchases would include Commonwealth and state bonds, but
not private sector debt, he added.
"(The RBA) has no desire, or need, to buy private sector
assets. By lowering the risk free curve, the RBA would lower all
AUD rates," said Chambers.
Investors reacted by pushing three-year bond futures to a
record high at 99.845, implying a rate of just 0.145%.
Futures for 10-year bonds firmed to 99.250, near the
highest since March when markets were tipped into turmoil as
economies across the globe began shutting to fight the
Chambers forecast 10-year yields would drop further to 0.5%
by year end should the RBA ease as expected.
"We think it can succeed in driving some marginal, temporary
weakness in the AUD; but ultimately the currency's fortune will
be decided by the trajectory of global growth," he added.
(Editing by Lincoln Feast.)