Australian dollar dips as RBA plays a steady bat on rates

By Wayne Cole

SYDNEY, Nov 4 (Reuters) - The Australian dollar remained under water on Tuesday after the country's central bank held interest rates steady as expected, while offering scant guidance on the chance of further easing down the track.

The Reserve Bank of Australia kept its cash rate at 3.60% for a second straight policy meeting, having cut three times earlier in the year, citing higher core inflation, a pick up in consumer demand and rising house prices as reasons for caution.

The central bank also revised its forecasts for inflation sharply higher, and does not see core inflation returning to its 2% to 3% target band until after mid-2026.

"If that proves correct, interest rates won't move lower until the second half of 2026 at the earliest - if at all," said Harry Murphy Cruise, head of economic research for Oxford Economics Australia.

"We're a little less pessimistic on the inflation outlook," he added. "At the same time, unemployment will continue to rise, strengthening the case for some additional monetary easing next year."

Investors had already given up on a near-term easing given a startlingly high reading for core inflation in the third quarter suggested policy needed to stay tight for a while longer.

A cut in December is also seen as only a 10% chance and a move to 3.35% is no longer fully priced in, implying the RBA's entire easing cycle may already be over. 0#AUDIRPR

The absence of any surprises left the Aussie off slightly at $0.6526 AUD=D3, having been as low as $0.6515 overnight as the greenback firmed broadly. Major support is down around $0.6470 with resistance at $0.6617.

Three-year bond futures YTTc1 stood at 96.340, after touching a five-month low of 96.305. It has shed 28 basis points in little more than a week. Yields on 10-year bonds AU10YT=RRheld at 4.345%, well above the October low of 4.096%.

The kiwi dollar dipped to a three-week low of $0.5686 NZD=D3, as the greenback gained. Support lies at $0.5694, with resistance around $0.5800.

Investors are still confident the Reserve Bank of New Zealand will cut its 2.5% cash rate at a meeting in late November, though that could be the last move in the long retreat from a top of 5.5%. 0#NZDIRPR