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AUD Firms as RBA Trims Bond Buying, NZD Jumps on Rate Wagers

SYDNEY, July 6 (Reuters) - The Australian dollar firmed on Tuesday after the country’s central bank said it would pare the pace of its bond buying campaign from September, but reiterated a hike in rates was not on the cards until 2024.

The New Zealand dollar had already popped higher as a strikingly strong survey of business conditions led investors to wager a hike in rates could come as early as November this year.

The Aussie was up 0.5% at $0.7564 as the Reserve Bank of Australia (RBA) ended its July policy meeting by keeping rates at 0.1% as expected, but trimmed its bond buying plans.

The bank will purchase A$4 billion ($3 billion) of bonds per week from September to at least mid-November, down from the current pace of A$5 billion.

As expected, it kept its three-year bond target linked to the April 2024 bond, rather than extending it to November 2024.

Investors have priced in a risk of a rate hike by late 2022, though the RBA said its “central scenario” was that the conditions for a move would not be met until 2024.

“That sounds far less confident than its previous view that the conditions are “unlikely to be met until 2024 at the earliest”,” said Marcel Thieliant, a senior economist at Capital Economics.

“The Bank will probably slow the pace of its bond-buying further in November and we suspect it will end them completely by the middle of next year,” he added. “And we reiterate our view that it will raise rates at the beginning of 2023.”

The kiwi dollar climbed 0.9% to $0.7087 after the closely watched New Zealand Institute of Economic Research (NZIER) survey of business showed a marked pick up in activity.

Firms reported surprisingly strong demand in the June quarter, while labour shortages and supply chain disruptions pointed to rising inflation.

That fuelled speculation the Reserve Bank of New Zealand (RBNZ) would lift the 0.25% cash rate well before its current projection for the third quarter of next year.

Yields on two-year bonds jumped almost 10 basis points to their highest for this year at 0.64%.

“The inflation and demand gauges in the NZIER’s Survey are so strong that it is increasingly clear that the RBNZ cannot afford to wait much longer,” ASB chief economist Nick Tuffley said in a research note.

“We now expect the RBNZ to start lifting the OCR from November 2021.”

($1 = 1.3233 Australian dollars)

(Editing by Lincoln Feast.)

Source: Reuters

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