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SYDNEY: The Australian dollar was underpinned on Thursday by hawkish comments from its central bank chief, while bonds took a dive as markets moved to lengthen the odds of a further rise in local interest rates.

The Aussie rose 0.1% to $0.6550 in a holiday-thinned market, having trended as high as $0.6569 overnight.

It failed to break above resistance at $0.6590 as the US dollar firmed after jobless claims data and a consumer sentiment survey showed the Fed’s inflation challenge might not be over yet.

The kiwi gained 0.4% to $0.6046, after falling also 0.5% overnight to as low as 60 cents. Markets are shut in Japan and the United States for the Thanksgiving holiday, so liquidity is thin.

Taking some shine off the Australian dollar is news that China’s state planner on Thursday warned market participants not to hoard, hype up prices and manipulate the iron ore futures market after a recent rapid rise in iron ore prices.

Down Under, in a hawkish-sounding speech on policy on Wednesday, Reserve Bank of Australia Governor Michele Bullock warned that inflation had become increasingly driven by domestic demand, requiring a more “substantial” response from interest rates.

Australian dollar hits 3-month high, draws extra boost from firm yuan

“It does not like a central bank that’s finished the job… If you listen objectively to what she was saying, you probably would think one (more hike) ain’t going to do the job. Maybe we need more like two”, said Sally Auld, chief investment officer at JBWere.

Markets have clearly responded to her hawkishness, with swaps now implying the chance of one more increase in the cash rate to 4.6% at more than 60% now in the new year, up from 40% before.

Three-year government bond yields jumped 7 basis points to 4.159%, while the benchmark 10-year yields rose 4 bps to 4.491%.

GSFM investment strategist Stephen Miller expects the next window for a policy rate increase will not occur until the February meeting next year after the release of the December quarterly inflation report in late January.

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