Aussie drops 0.6% because of RBA claim of inflation still too low, according to RBA.
The Reserve Bank of Australia spoke with a more dovish tone than expected in the first meetings of central banks this week.
The U.S. Federal Reserve expected to announce a start of tapering its asset purchases as it kicks off its two-day meeting on Tuesday. Markets are having a rise in interest rate at the Bank of England meeting on Thursday.
The investors think they are concerned about rising inflation to end pandemic-era levels of easing, as they bet that investors are concerned about the growing inflation to end a pandemic-era levels of easing.
The Aussie dollar was down as much as 0.8% to a $0.7457, its weakest since Oct. 22 when Australia's central bank did not show that hawkish pivot.
The RBA said the inflation was still too low although it omitted it was previous projection that rates were unlikely to rise until 2024 and dropped a target for the April 2024 government bond.
Analysts said that the message was still more hawkish than previous RBA meetings, even if not as hawkish as markets had anticipated.
Unlike other central banks like the ECB, the RBA's message was successful in at least marginally scaling down hawkish bets, although markets are still pricing in 76 basis points of tightening in the next 12 months, said ING analysts in a note.
They said there was a gap between the performance of the currency and the interest rates, with last week's jump in the dollar considerably small when interest rates rose, and the short-term risk for the Aussie skewed to the upside, as the currency has been over-discounting the post-RBA correction in yields.
New Zealand's dollar dropped in a two week low, losing 0.8% to $7130, a two-week low.
Currency markets in other areas were treaded water as they waited to see whether policymakers were ready to dial back stimulus.
The pound was up by 0.2% to $1.3627, slipping 0.2% to $1.3627.
The dollar weakened by 0.3% to 113.68 yen, remaining below its four-year peak of 114.695 reached on Oct. 20.
The Swiss Franc briefly hit a new 18 month high against the euro. It dropped to as weak as 1.0544 francs, the lowest since May 2020, before it bounced back to trade at 1.0581, up 0.3% on the day.
The franc has been strengthening against the US dollar, although it was down by 0.3% on Tuesday.
Marshall Gittler, head of Investment Research at BDSwiss Holding, said that the Swiss National Bank, which concerns about a stronger franc hurting its economy, was not able to intervene as actively to arrest the Franc strength as it had during previous moves higher.
He said that the SNB could go only through the exchange rate rather than through its policy rate, which could be the way that it goes along with the global trend towards tighter monetary policy.