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 <AUD=D3> 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 <NZD=D3> 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 <YTTc1>, implying a rate of just 0.145%.
Futures for 10-year bonds <YTCc1> 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 coronavirus.
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.)
