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SYDNEY: The Australian dollar pared early gains on Tuesday after the country’s central bank again pushed back against market pricing for a rate hike in 2022, though bond investors seemed happy to wager the bank would ultimately prove to be wrong.

The Aussie faded to $0.7351 and away from resistance at $0.7370, but remained some distance from the recent five-week trough at $0.7277.

The New Zealand dollar held firm at $0.7060, again some way from last week’s low of $0.6997.

Both had been aided by a sharp selloff in the euro, which slid 0.9% on the Aussie overnight to A$1.5464. But Aussie bulls got no help from Reserve Bank of Australia (RBA) Governor Philip Lowe who again dismissed market pricing for a hike in the 0.1% cash rate next year, saying recent data and forecasts did not warrant such a move.

The futures market clearly disagreed, with a first move to 0.25% implied by June and further hikes toward 1.0% by year end.

Investors are generally wagering that global inflationary pressures will be more lasting than the RBA, and other central banks, assume. Many also assume the US Federal Reserve will start tightening by mid-year, so making it harder for the RBA to sit still.

Lowe argued that there was more inertia in wages and inflation in Australia.

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