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SYDNEY/WELLINGTON: The Australian dollar rose on Monday to be on track for its second consecutive month of gains, ahead of a monetary policy-setting meeting by its relatively dovish central bank and supported by high commodity prices.

he Aussie was trading 0.19% higher at $0.7723, albeit nearer the lower end of its May range of $0.7675 to $0.7891, as investors wait to hear from the Reserve Bank of Australia (RBA) on Tuesday after its June meeting.

The New Zealand dollar was trading 0.12% higher at $0.7257 and is on track for a monthly 1.37% gain, rallying last week after the Reserve Bank of New Zealand signalled rate rises as early as the middle of next year, making it one of only a handful of central banks to talk of tightening.

Illustrating investor caution ahead of the RBA meeting, Australian 10-year bond yields were one basis point higher at 1.64%. Yields on New Zealand bonds for the same maturity were trading four-and-a-half basis points lower at 1.85%.

Currency strategists expect the RBA will reaffirm its guidance of a cash rate remaining at record lows “until 2024 at the earliest”, which will highlight the increasing wedge between RBA’s stance and that of its global peers.

Investors will also be eagerly awaiting Australia’s economic output figures for the first quarter of 2021, which are due to be released on Wednesday.

“The RBA remains motivated to avoid an unwelcome upward movement in the Australian dollar,” said GSFM investment strategist Stephen Miller.

“Any move up in the AUD could well frustrate the task of getting unemployment down and wage growth and inflation up. The RBA also appears largely unconcerned by market expectations of inflation rebounding. Like the Fed, this may reflect a belief that any near-term inflation will be essentially transitory.”

While Australia’s economy has recovered more rapidly than anyone expected, the latest week-long coronavirus lockdown of the state of Victoria would hit growth this quarter and provide a further reason for the RBA to stay dovish.

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