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SYDNEY: The Australian and New Zealand dollars remained under pressure on Wednesday as expectations for more aggressive rate hikes abroad narrowed their yield advantage, while also undermining commodity prices.

The Aussie was pinned at $0.6678, having again stopped just short of its recent 2-1/2 year trough of $0.6670.

Resistance lies around $0.6750, with the next major bear target down at $0.6460. The kiwi extended its slide to $0.5889, after breaching support at $0.5921 to hit its lowest since April 2020.

Australia, NZ dollars give ground as yield buffer shrinks

Support now lies around $0.5844. Bonds globally had taken another hit overnight when Sweden’s central bank surprised by hiking rates a full percentage point, adding to concerns the US Federal Reserve might do the same later on Wednesday.

That saw Australian 10-year yields touch a three-month high of 3.789%, but US yields were rising even more and keeping the Australian yield premium down at a meagre 19 basis points.

Markets are wagering US rates could peak at 4.5% or higher, while rates in Australia are not seen topping 4%.

Analysts suspect the Reserve Bank of Australia (RBA) might hike by another 50 basis points (bps) in October, but assume it will then scale back to quarter-point moves.

RBA Deputy Governor Michele Bullock on Wednesday reiterated the Board was looking for opportunities to slow the pace of hikes and noted wage growth was not nearly as strong domestically as in some other developed nations.

The central bank has already lifted rates by 225 bps to a seven-year high of 2.35%, one of the most aggressive tightenings in its history.

“If we are correct, and the Board chooses to lift the cash rate by a further 50 basis points in October – comfortably above previous assessments of neutral - then the moves thereafter, and we expect three more, will be at the slower pace of 25 basis points,” said Westpac chief economist Bill Evans.

Goldman Sachs economist Andrew Boak is on the hawkish side of expectations by tipping half-point hikes in both October and November, but still sees rates topping out at 3.6% and well below market pricing for the Fed.

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