The Australian and New Zealand dollars were trying to sustain a rally on Tuesday after a bounce on Wall Street improved risk sentiment globally and Australian data underlined the case for further increases in interest rates at home.
The Aussie eased slightly to $0.6954 AUD=D3 , after climbing 0.7% overnight and away from support at $0.6890. Resistance lies at $0.7011. The kiwi edged back to $0.6334 NZD=D3 , having added almost 0.8% overnight.
Aiding the Aussie was a surprisingly upbeat survey on business conditions which showed sales hit historically high levels in January, contradicting talk of a slowdown.
The NAB survey also showed cost pressures had ticked higher, an unwelcome development for the Reserve Bank of Australia (RBA) as it struggles to contain inflation.
The central bank lifted interest rates a quarter point to a decade-high of 3.35% last week and wrongfooted many by warning that at least two further hikes were on the cards.
Markets responded by raising the expected top for rates to around 4.1%, from 3.6% a month before.
0#RBAWATCH "Our business survey measures of costs and prices appear to have peaked but remain very high with strength evident across all industries," said NAB chief economist Alan Oster.
"We continue to expect strong prints for wages and inflation to continue in the near term," he added. "NAB now sees the RBA lifting rates to a peak of 4.1% in May, including 25bp increases at each of the next three meetings."
That outlook has not gone down well with consumers as Westpac's latest survey showed sentiment slid 6.9% to depths usually associated with recessions.
The bleak mood has yet to have much impact on what consumers actually do, with weekly spending on bank cards still resilient, though analysts assume that will have to change as mortgage payments rise ever higher.
The risk that further aggressive hikes will slow the economy has been reflected in a flatter yield curve. The spread between 10- and three-year bonds has narrowed to 29 basis points, from as wide as 53 basis points in late December.
The Australian curve rarely inverts completely like it does in the United States, with the last stretch during the global financial crisis.
There was better news for the Reserve Bank of New Zealand as its survey of inflation expectations showed the two-year outlook slowed to 3.3% this quarter, from 3.62% in the December quarter.
That should offer some reassurance that inflation expectations are staying anchored near the bank's 1-3% inflation target.
