Australian dollar holds near 12-week peaks, bonds slide on rate risk

Business Recorder reported that the Australian dollar held close to a 12-week high on Thursday as swap markets moved toward a rate increase from the Reserve Bank of Australia. The currency rose 0.2% to $0.7184 after touching $0.7189 overnight, and it faces resistance near $0.7200 and $0.7277. A firm inflation report on Wednesday and a 1.1% jump in July household spending lifted the odds of a hike next month to 53%, roughly a coin toss.

Government bond yields climbed in response. Three-year yields rose 7 basis points to 4.682%, a one-month high, after a 5 basis point gain the previous day. Ten-year yields added 8 basis points to 5.095%, their loftiest reading since May. National Australia Bank economist Jessie Cameron said the spending figures could reflect higher prices or stronger volumes, each carrying a different message on inflation and household demand.

The RBA kept rates unchanged at 4.35%, its second pause this month after three increases this year, though policymakers have warned of higher rates if inflation risks emerge. The New Zealand dollar edged 0.1% higher to $0.5952 after a 0.5% overnight fall, as the US dollar firmed on strong American inflation data. The Reserve Bank of New Zealand meets next Wednesday, and markets put a 96% chance on a 25 basis point increase to 2.75%, its second consecutive hike.