News: Australia dlr eases, even as market wagers RBA has to follow hawkish Fed

The Australian and New Zealand dollars were under pressure on Wednesday as investors wagered on ever-more aggressive rises in global interest rates, battering local bond markets.

The Aussie was off at $0.7186 AUD=D3 , having slipped 0.3% overnight and way down from a recent two-month top of $0.7314. The break under $0.7200 risks a pullback to the January trough of $0.7130, with more support at $0.7082.

The kiwi dollar was left at $0.6771 NZD=D3 , after losing 0.4% overnight. That was well away from last week's top of $0.6890 and put the focus on support at $0.6753 and $0.6733.

Their U.S. counterpart gained broadly as the market shifted to price in at least four rate increases from the Federal Reserve this year. FEDWATCH

Investors are wagering the Reserve Bank of Australia (RBA) will have to follow, even though policy makers have long argued that any move was unlikely this year.

Futures 0#YIB: imply a 77% chance the RBA will lift rates to 0.25% as early as May, and hike no less than five times this year to 1.25%. RBAWATCH

Key will be consumer price figures for the December quarter due next week where some analysts are tipping another outsized rise in core inflation.

"We expect there to be evidence of both demand pull and cost push inflation," warned Gareth Aird, CBA's head of Australian economics. "Input costs have risen in part due to supply side bottlenecks, while strong demand will have enabled firms to lift their prices at the consumer level."

He predicts the trimmed mean measure of inflation will jump 0.9% in the quarter, the largest increase since early 2009. That would lift the annual rate to 2.5%, from 2.1%, the fastest pace in more than seven years.

It would mean core inflation was back in the middle of the RBA's 2-3% target band more than a year earlier than expected.

"If the trimmed mean prints in line with our call it would be a big upside surprise relative to their forecast," said Aird.

"It will be the smoking gun that sees the RBA end the bond buying program at the February Board meeting and drop its forward guidance on the cash rate."

The RBA currently buys A$4 billion ($2.88 billion) of bonds a week and plans to review that at the Feb. 1 meeting, either extending to May or ending it altogether.

A prospective end to buying combined with the sell off in Treasuries to send Australian 10-year bond yields AU10YT=RR up sharply to 1.99%, a rise of 33 basis points so far this month.

($1 = 1.3912 Australian dollars)