The Australian dollar fell sharply after the country's central bank stepped back from its long-standing tightening bias, saying the next move in rates could be down as just as well as up.
The Aussie slid 0.8 per cent to 71.80 cents in the wake of the shift as investors narrowed the odds that rates would have to be cut this year given mounting downside risks at home and abroad.
Futures now imply a 60 per cent probability of a quarter point drop in the 1.5 per cent cash rate by year end, compared to 50 per cent before the comments.
Australian government bond futures firmed, with the three-year bond contract up eight ticks at 98.330.
Reserve Bank of Australia Governor Philip Lowe said the bank remained optimistic on the economic outlook but acknowledged rates might fall if unemployment were to rise and inflation stay too low.
"Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios. Today, the probabilities appear to be more evenly balanced," he said.
The RBA has left its official cash rate at a record low of 1.50 per cent since August 2016 and Lowe had repeatedly emphasised the next move was more likely to be up.
The shift in stance follows the US Federal Reserve's move last week to all but drop its plans for more rate hikes.
The European Central Bank has also sounded less certain that it will start tightening later this year.
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