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Australia, NZ Dollars on Wild Ride as Inflation Risks Mount

SYDNEY, March 8 (Reuters) - The Australian and New Zealand dollars were edging higher again on Tuesday as wild swings in oil prices made for erratic markets and analysts revised up expectations for rate hikes at home.

The Aussie was up 0.3% at $0.7340 , having been as high as $0.7440 at one point overnight before recoiling all the way to support at $0.7310.

The kiwi dollar added 0.2% to $0.6845, after running as far as $0.6926 overnight before a pullback to $0.6822.

The erratic moves came as the euro won a reprieve from a recent torrent of selling to steady around A$1.4790, having been down as deep as A$1.4554 in very volatile trading.

While the Antipodeans were still drawing support from sky-high commodity prices, these also act as a tax on consumers and a brake on world growth that might not be positive for risk-sensitive currencies in the longer run.

JPMorgan, for instance, now sees global growth slowing to 2.6% in the first half of this year compared to a forecast of 4.9% just three weeks ago.

Inflation will also be markedly higher, something locals are already experiencing as petrol spikes to record highs.

So great is the inflationary impact that ANZ now expects the Reserve Bank of New Zealand (RBNZ) will have to hike its 1.0% cash rate by 50 basis points at both its April and May policy meetings. 

Markets imply around a 50-50 chance of a half-point move in April, and only see rates around 1.70% in May.

In Australia, NAB has brought forward the expected timing of a first rate hike to August from November, and a further two moves to 0.75% by year end. It sees the cash rate peaking around 2.25% in late 2024.

The futures market has already narrowed the odds on a hike as early as June, following what is likely to be a very strong March quarter consumer price report.

"The change in our view comes alongside an upgrade to our domestic forecasts," said NAB chief economist Alan Oster.

"We now see the unemployment rate below 4% by March, well ahead of RBA expectations, and core inflation at around 3.75% by mid-year compared to the RBA's 3.25% forecast."

NAB's business survey out on Tuesday showed activity had recovered quickly in February, from January's Omicron-driven setback. 

The outlook for inflation sent three-year yields surging to their highest since early 2019 at 1.65%. Yields on 10-year bonds climbed to 2.19%, putting them a wide 42 basis points above Treasuries.

Editing by Sam Holmes

Source: Reuters

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