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Australian dollar gains as RBA sees recovery on track

12/07/2021 | 12:42am EST

Dec 7 (Reuters) - The Australian dollar gained ground on Tuesday after the central bank indicated the Omicron variant outbreak was unlikely to derail the current financial recovery, while some analysts saw hints it may raise rates sooner than expected.

The Aussie was up 0.3% at $0.7072 by 0426 GMT, recovering after losing 1.5% last week. However, it was far from its Oct. 29 quarterly peak of $0.755.

The Reserve Bank of Australia (RBA) left its cash rate at a record low, in line with market expectations, and stuck with its bond buying plans, resisting pressure to follow its U.S. counterpart in signalling an earlier winding down of stimulus.

However analysts said subtle changes in language - removing a reference to inflation sitting in the bank's target by late 2023 - suggest the bank is giving itself room to move a little sooner.

"That appears to have helped the Australian dollar to push a little higher to $0.7071 after hitting one year plus lows below $0.70 on Friday night, and extreme oversold levels," strategists at Westpac said in a note.

"Helped by better China trade data too, we would not be surprised to see the (AUD) bounce extending a little further towards $0.71, but would be surprised to see much above that level."

Data showed China's exports and imports rose more than expected in November as the world's second-biggest economy scrambled to restock key commodities like coal.

Meanwhile, a Reuters poll last week showed economists expect a first rate hike by the RBA in early 2023, though markets have fully priced in a hike as early as July next year.

Local investors now await inflation data from the United States and China this week, with a readout from the world's largest economy of particular interest amid the Federal Reserve's hawkish signals about a speedier stimulus taper.

"U.S. and China inflation data later in the week will override any RBA move now. If the inflation is hot and the U.S. Fed moves to faster tapering, then AUD-USD will get hit hard," Mathan Somasundaram, chief executive officer at Deep Data Analytics said.

Three-year yields in Australian bonds rose 6 basis points to 0.955% and 10-year yields added 7.1 pips to 1.663%. (Reporting by Shashwat Awasthi and Sameer Manekar in Bengaluru; additional reporting by Riya Sharma Editing by Lincoln Feast and Richard Pullin)

ę Reuters 2021
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