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SYDNEY: The Australian and New Zealand dollars edged higher on Thursday after the US Federal Reserve began trimming bond buying but sounded guarded on when it might actually hike rates, prompting some profit-taking on crowded greenback positions.

The Aussie crept up to $0.7458 and away from Wednesday’s trough of $0.7412, but faces immediate resistance around $0.7480. A break above the 200-day moving average at $0.7554 is needed to signal another leg higher.

The kiwi dollar fared better at $0.7165, having bounced 0.7% overnight as markets priced in more tightening following Wednesday’s super-strong jobs report.

The Reserve Bank of New Zealand (RBNZ) meets on Nov. 24 and markets are fully priced for another quarter point rate rise to 0.75%, with a decent chance of a move to 1.0%.

“The starting point for the economy is wildly stronger than the RBNZ expected, and the upside risks for inflation are growing,” said Westpac economist Michael Gordon.

“It looks increasingly unlikely that a smooth glide path towards a neutral cash rate of 2% would be enough to rein in inflation pressures,” he added. “So we now expect the cash rate to peak at 3% by mid-2023.”

If so, that would be far above most other developed nations. The market currently has US rates around 1% by mid-2023, and Australian rates at 1.5%.

The Reserve Bank of Australia (RBA) is still arguing that a domestic rate hike in 2022 is extremely unlikely, even though the market is fully priced for a move by July.

David Plank, head of Australian economics at ANZ, believes the resilience of the labour market and rising inflation expectations will set the scene for a hike in the first half of 2023.

Ahead of that, he expects the RBA to halve weekly bond purchases to A$2 billion in February next year, and finish QE altogether in May.

“The stronger global inflation pulse means we now see inflation lifting to 2.5% in Q1 2023. This will be the trigger for the RBA to tighten,” said Plank.

“The current cycle is unprecedented, so uncertainty around our forecasts is much greater than usual - a data point or two could lead to quite a big shift in view.”

With that in mind, the next major release will be the wage price index for the third quarter on Nov. 17 where any surprise on the high side would stoke market speculation of an earlier RBA hike.

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