Australian Dollar Retreats On RBA's Surprise Rate Cut

The Australian dollar retreated from early highs against the other major currencies in the Asian session on Tuesday after the Reserve Bank of Australia lowered its key rate unexpectedly by 25 basis points as inflationary pressures were weaker than projected.

The board of the Reserve Bank of Australia governed by Glenn Stevens reduced its benchmark cash rate to a record low 1.75 percent from 2.00 percent, effective May 4. This was the first reduction since May 2015, when the bank cut it by a quarter point. Economists were expecting the bank to keep rates unchanged today.

The Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.

In other economic news, data from the Australian Bureau of Statistics showed that the total number of building approvals issued in Australia was up a seasonally adjusted 3.7 percent on month in March, coming in at 19,371. That beat forecasts for a decline of 2.0 percent following the 3.1 percent gain in February.

On a yearly basis, consents fell 6.5 percent, also beating expectations for a decline of 14.0 percent following the 9.0 percent contraction in the previous month.

Data from Caixin showed that the manufacturing sector in China continued to contract in April, and at an accelerated pace, with a Performance of Manufacturing Index score of 49.4. That missed forecasts for 49.8, and it was down from 49.7 in March.

The Australian dollar traded higher against its major rivals in the early Asian session and weakened post the RBA rate decision.

In the late Asian session, the Australian dollar fell to a 6-day low of 0.7556 against the Canadian dollar and nearly a 6-month low of 0.9464 against the Canadian dollar, from early 6-day highs of 0.7719 and 0.9654, respectively. If the aussie extends its downtrend, it is likely to find support around 0.74 against the greenback and 0.93 against the loonie.

Against the yen, the euro and the NZ dollar, the aussie dropped to more than 2-month lows of 80.02, 1.5264 and 1.0789 from early 4-day highs of 81.95, 1.4936 and 1.0945, respectively. The aussie may test support near 79.00 against the yen, 1.56 against the euro and 1.07 against the kiwi.

Meanwhile, the other commodity currencies such as the Canadian and the New Zealand dollars retreated against their major counterparts after the announcement of RBA's unexpected rate cut.

The NZ dollar fell to a 6-day low of 1.6528 against the euro, from an early high of 1.6348. The kiwi may test support near the 1.67 region.

Against the U.S. dollar and the yen, the kiwi edged down to 0.6974 from an early 2-week high of 0.7054. If the kiwi extends its downtrend, it is likely to find support around the 0.68 region.

The kiwi dropped to more than a 3-week low of 73.86 against the yen, from an early 4-day high of 74.90. On the downside, 73.00 is seen as the next support level for the kiwi.

The Canadian dollar fell to 1.2529 against the U.S. dollar, from an early 4-day high of 1.2502. If the loonie extends its downtrend, it is likely to find support around the 1.27 area.

Against the yen and the euro, the loonie dropped to 84.53 and 1.4452 from early highs of 84.97 and 1.4421, respectively. The loonie may test support near 82.00 against the yen and 1.46 against the euro.

Looking ahead CIPS/Markit U.K. manufacturing PMI data for April and Eurozone PPI for March are due to be released later in the day.

At 10:30 am ET, Federal Reserve Bank of Cleveland President Loretta Mester will participate in a panel discussion titled "Unconventional wisdom: How will unusual monetary policy affect market liquidity" at the Atlanta Federal Reserve's Annual Financial Markets Conference in Amelia Island.

At 12:30 pm ET, Bank of Canada Governor Stephen Poloz is expected to participate in a panel discussion at the Milken Institute's Global Conference in Los Angeles.

The Japanese markets are closed in observance of the Constitution Day holiday.