Australian dollar slips on RBA speech, kiwi eyes rate decision

The Australian dollar reversed early gains on Tuesday after a senior central banker flagged the prospect of policy options including currency market intervention and negative interest rates.

The Australian dollar was last down 0.2 per cent to $0.7207, from a high of $0.7236 before the closely-watched speech by Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle.

Debelle listed a number of policy options the RBA board was assessing to meet its employment and inflation objectives.

Foreign exchange intervention was also being considered, though Debelle said it was not clear whether this would be effective given the Australian dollar was "aligned with fundamentals."

The Aussie is up about 3 per cent so far this year helped by stronger prices for its top export iron ore and comparatively low coronavirus infections.

Some Australian states and territories have virtually eliminated the virus while others are seeing cases in low single digits. Only Victoria is in a hard lockdown after a surge of cases since July but it is now seeing a rapid slowdown in new infections.

A weaker greenback has also helped prop up the risk-sensitive currency.

"That said, a lower exchange rate would definitely be beneficial for the Australian economy, so we are continuing to watch developments in the foreign exchange market carefully," Debelle said in his speech.

Across the Tasman Sea, the New Zealand dollar was down 0.1 per cent at $0.6666 ahead of policy decision by the country's central bank on Wednesday.

The Reserve Bank of New Zealand (RBNZ) will likely leave its official cash rate at record lows and hold off on further stimulus on signs the fallout from coronavirus pandemic could be milder than expected.

New Zealand government bonds rose, sending yields about 2 basis points lower.

Australian government bond futures were slightly higher, with the three-year bond contract up half a tick at 99.720. The 10-year contract rose 1 tick to 99.1050.