SYDNEY, April 4 (Reuters) - The Australian dollar slipped on Tuesday after the country's central bank paused its 10-month tightening campaign while warning further rate rises may yet be needed, with bond yields falling as markets wagered that hikes were now over.
Investors had suspected the Reserve Bank of Australia (RBA) would keep rates at 3.6% as the 350 basis points of increases already delivered were crimping consumer demand while inflation looked to have peaked.
Most analysts had also assumed the central bank would leave the door open to further tightening if needed, making it a hawkish pause.
The market implies a small chance the RBA could hike in May should inflation figures for the first quarter due later this month surprise on the high side.
Futures then imply a growing probability of cuts starting from late this year and have rates at 3.0% by August 2024.
"High-frequency inflation indicators suggest lower price pressures than elsewhere across G10 and the RBA comments on lower household spending indicates concerns on a weaker domestic sector, notably in the context of rising mortgage payments," said Dwyfor Evans, head of APAC macro strategy at State Street Global Markets.
"Softer growth, business conditions and confidence indicators might also have played a role in the decision and combined with institutional investor selling of the AUD, compels us to a near-term negative stance on the currency."
The Aussie slipped 0.3% on the decision to $0.6762, though that followed a 1.5% rally overnight when the U.S. dollar was stung by weak factory data. That bounce breached resistance at the 200-day moving average of $0.6751 and set up a next target of $0.6860.
The kiwi dollar held at $0.6300, after rising almost 0.7% overnight to test resistance at $0.6309. A break here opens the way to a double top from February at $0.6389.
Three-year bond futures reacted by climbing 8 ticks to 97.130. Yields on 10-year bonds dipped to 3.25%, having fallen around 65 basis points in the past month amid strains in the global banking system.
Markets still think the doggedly hawkish Reserve Bank of New Zealand (RBNZ) will raise rates a quarter point to 5.0% at its policy meeting on Wednesday, and likely not stop until it reaches at least 5.25%.
The rapid-fire tightening is clearly having an impact with a survey of business showing a majority were pessimistic on the outlook, while also showing promising signs of an easing inflationary pressure. (Reporting by Wayne Cole; Editing by Lincoln Feast.)
