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AUD, NZD Head for 5th Week of Losses, RBA Meeting Looms

SYDNEY, Dec 3 (Reuters) - The Australian and New Zealand dollars were headed for their fifth week of losses on Friday as the spread of the Omicron variant clouded the outlook for global growth just as markets were pricing in a faster pace of U.S. rate hikes.

The Aussie was pinned at $0.7081 , having shed 0.5% for the week so far, but did manage to hold above the 13-month low of $0.7063 hit earlier in the week.

The next bear target is a trough from November 2020 at $0.6990, while major resistance is up at $0.7172.

The kiwi dollar was also down about 0.5% for the week at $0.6796 , but again above the low of $0.6773. It has little in the way of support until $0.6700.

With the U.S. Federal Reserve signalling a faster pace of tapering, the market is wondering how the Reserve Bank of Australia (RBA) might react at its policy meeting next week.

Most analysts assume it is too early for the RBA to change tack on its dovish outlook of no rate hikes in 2022, though there was some talk it might flag a cut in its bond buying.

RBA Governor Philip Lowe has repeatedly stated the QE programme would be reconsidered at the February meeting, with most analysts assuming it would halve to A$2 billion ($1.42 billion) a week and end it in May or June.

"If the Fed does accelerate the pace of its bond tapering, then we think the RBA could well decide to end its QE program altogether in February," said David Plank, head of Australian economics at ANZ.

However, he doubted the RBA would flag any change next week, in part because the Fed does not meet until Dec. 15.

Plank expects the first rate hike to come in May 2023 and rates to end that year at 1%. The market is far ahead, with a rise to 0.25% almost fully priced by June next year and rates approaching 1% by the end of 2022.

The bond market has moved some way to price in a greater risk of early hikes with three-year yields having climbed to 0.94% from 0.25% at the end of September.

Longer-term bonds have had a more bullish run in line with a rally in Treasuries, taking 10-year yields down almost 15 basis points this week to 1.644%.

($1 = 1.4118 Australian dollars)

Editing by Sam Holmes

Source: Reuters

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