The Australian dollar jumped to a nine-month high on Tuesday after the country's central bank took a step toward an earlier rise in interest rates, lifting bond yields as the market narrowed the odds on a June hike.
The Aussie shot up 0.9% to $0.7613 AUD=D3 , easily surpassing its October top of $0.7555. The next chart target is a retracement level around $0.7650.
It also touched a fresh five-year peak on the euro as the economic risks of more sanctions on Russia saw the single currency slide 0.8% to A$1.4403 EURAUD= .
The kiwi dollar firmed to $0.6982 NZD=D3 , but was again rebuffed by resistance in the $0.6990/7000 zone. Support lies at the 200-day moving average of $0.6910.
The gains came after the Reserve Bank of Australia (RBA) surprised many by dropping a previous pledge to be "patient" on policy at its April Board meeting.
Instead, it would now assess inflation and wage data over "coming months" on whether and when to change policy.
Data for consumer prices are due on April 27 and analysts suspect it could show core inflation jumped by 1.0% or more in the first quarter to take the annual pace to at least 3.2%.
That would be the first time core inflation topped the RBA's 2-3% target band since early 2010 and make it harder to justify retaining rates at emergency lows.
"Clearly upcoming inflation data, plus wages data on May 18, will be critical for the RBA and the evolution of market pricing," said Robert Rennie, head of financial market strategy at Westpac.
"The AUD break-up through $0.7550 opens further near-term upside potential and a move towards $0.7650/0.77 is possible. We are sceptical we will see gains much above that for now."
The market has long wagered the RBA will have to start hiking as soon as June and imply some chance of a move in May, though dealers assume the timing of the Federal election that month makes it less likely.
Futures
0#YIB: are now more than fully priced for a June rise to 0.25%, with some risk of a move to 0.5%. A string of further increases are seen taking rates to 1.75% by year-end.Three-year bond yields AU3YT=RR added another 6 basis points to 2.46%, having already shot up 87 basis points last month. The move shrank the spread to 10-year yields to 40 basis points, making the flattest curve since early 2020.
Outright inversion of the yield curve is rare in Australia, with the last time being the global financial crisis in 2008/09 when the economy did stall for a time but dodged recession.
