SYDNEY, Oct 30 (Reuters) - The Australian dollar rose on Monday as a stronger-than-expected retail sales report added to the case of higher interest rates at home, although volatile global risk sentiment has capped the gains.
The Aussie AUD=D3 rose 0.3% to $0.6353, having eked out a 0.4% gain last week as a hot domestic inflation report raised the odds of a rate hike as soon as next week. It is, however, still pinned near its one-year low of $0.6271, and faces resistance at 64 cents.
The kiwi NZD=D3 was 0.3% higher at $0.5825, after a decline of 0.3% last week that saw it briefly touch a one year trough of $0.5774. Resistance is heavy at 59 cents.
The commodity-sensitive currencies often track global risk sentiment, and risk appetite has been dulled by Israel's push to surround Gaza's main city in a self-declared "second phase" of a three-week war against Iranian-backed Hamas militants.
Data on Monday showed Australia's retail sales rose 0.9% in September from August, the largest increase in eight months and beating analysts' expectations for a 0.3% increase. That led markets to slightly ramp up the bets for a hike in November to 61% from 58% before.
"The September retail data today reinforces our view the economy is surprisingly resilient, and adds to the case to hike in Nov-23," said analysts at UBS.
"Indeed, if this continues, it adds to the risk of an additional RBA hike of 25bps to 4.60% in Feb-24."
Russel Chesler, head of investments at VanEck, said the Australian dollar may gain some strength in the short-term if the RBA hikes as expected and the Federal Reserve holds steady.
Australian bonds sold off on the prospects of higher interest rates. Three-year government bond yield AU3YT=RR hit a fresh 12 year top of 4.388%, up 7 basis points on the day, while ten-year yields AU10YT=RR touched 4.889%, also the highest since 2011.
