Australian dollar finds support as RBA hikes again



By Wayne Cole

SYDNEY, July 5 (Reuters) - The Australian dollar nudged higher on Tuesday after the country's central bank raised interest rates for a third month in a row and signalled more rate hikes are in the offing, fuelling wagers on another outsized move next month.

The Aussie firmed a touch to $0.6873 AUD=D3 , after bouncing 0.7% overnight on reports the White House was closer to easing tariffs on Chinese goods. Resistance lies at $0.6920 and $0.6960, with support at a recent two-year trough of $0.6764.

The kiwi dollar stood at $0.6212 NZD=D3 , having found some support after hitting a two-year low of $0.6150 last week. Resistance comes in at $0.6253 and $0.6326.

The Reserve Bank of Australia (RBA) ended its July policy meeting by lifting its cash rate 50 basis points (bps) to 1.35%, marking 125 bps of tightening since May.

It reiterated that "further steps" would be needed to bring inflation to heel, leading futures 0#YIB: to narrow the odds on another half-point hike in August. RBAWATCH

Markets imply rates could reach 3.25% by the end of the year, though that is down from 3.75% early in June.

Yields on three-year bonds AU3YT=RR were a shade higher at 3.08%, but still a long way from their June top of 3.767%. Likewise, 10-year yields AU10YT=RR stood at 3.577%, well below the June peak of 4.125%.

"The market discussion is likely to focus on whether the RBA's resolve for a rapid front-loading of hikes is waning, and if so, whether that is a bullish or bearish signal for outright yields," said Damien McColough, head of rates strategy at Westpac.

"We suspect that some near term bullish impetus will not be sustained when we see the next inflation print."

Consumer price data for the second quarter is due later this month and is likely to show headline inflation topping 6% for the first time in two decades.

Core inflation is seen accelerating above 4% and further away from the RBA's target band of 2-3%.

"We now expect inflation to peak at 8% and expect the cash rate to rise to 3.5%," warned Marcel Thieliant, a senior economist at Capital Economics. "But we suspect that lower house prices will result in a plunge in dwellings investment that will bring the economy close to recession next year," he added, tipping rate cuts for late 2023.
Reporting by Wayne Cole; Editing by Edwina Gibbs

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