SYDNEY: The Australian dollar was consolidating recent hefty gains on Wednesday as upbeat economic data reinforced the case for further increases in interest rates.
The Aussie was holding firm at $0.6903, not far from a five-month peak of $0.6950 hit early in the week.
It faces resistance at an August top of $0.7009 and a chart target at $0.7136, while support lies at the 200-day moving average around $0.6836.
The New Zealand dollar also steadied for the moment at $0.6375, just off a recent one-month top of $0.6411.
Its bull target is a high from December at $0.6513. Supporting the Aussie was data showing Australian retail sales climbed 1.4% in November to handily top forecasts of a 0.6% gain and underline the resilience of consumer demand.
Investors reacted by narrowing the odds on a quarter-point rate rise to 3.1% at the Reserve Bank of Australia’s (RBA) next policy meeting on Feb. 7, though there is some chance it could pause to gauge the impact of previous hikes.
“The key implication is that there are no indications so far that monetary tightening is weighing materially on consumption,” said Tapas Strickland, head of market economics at NAB.
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“NAB continues to see the RBA hiking by 25bps in February and March, taking the cash rate to 3.60%.”
Other data out on Wednesday showed consumer price inflation picked back up to an annual 7.3% in November, reversing a surprise dip the month before.
A further increase is likely in December as electricity costs jump. Underlying inflation also accelerated to a fresh peak of 5.6%, pointing to the broad-based nature of cost pressures.
“While the monthly data need to be interpreted with caution given various measurement issues, the outcome supports our view that underlying inflation remains well above the RBA’s 2-3% inflation target and will require further policy tightening,” said analysts at Goldman Sachs.
They are forecasting a peak of 4.1% for the cash rate, while the market is split between 3.85% and 4.1%.