Australian dollar holds firm as yields hit 11-month high

By Wayne Cole

SYDNEY, Dec 2 (Reuters) - The Australian dollar edged ahead on Tuesday as local data pointed to solid economic growth in the third quarter, while bond yields jumped to 11-month highs as a selloff in Japanese debt spooked markets globally.

The fallout from Japan lifted 10-year yields AU10YT=RR to the highest since January at 4.623%, a rise of almost 20 basis points in just the past week.

Adding to the pressure was data showing Australian government spending rebounded strongly last quarter to add a chunky 0.4 percentage points to gross domestic product.

That more than offset a small drag from net exports and suggested upside risk for the GDP report due on Wednesday, where a quarterly gain of 0.7% or more is seen likely.

The pick-up in growth is one reason inflation has proved hotter than hoped for in recent months, leading investors to price out almost any chance of another cut in interest rates from the Reserve Bank of Australia. 0#AUDIRPR

The central bank policy board meets next week and is considered certain to hold rates at 3.60%, and perhaps turn more hawkish on the outlook for further easing.

RBA Governor Michele Bullock appears before lawmakers on Wednesday and is certain to be questioned on inflation, though she is usually careful not to pre-empt the board on policy.

Markets have already lifted Australian 10-year yields to 53 basis points above Treasuries, the widest spread since mid-2022.

That shift helped the Aussie hold firm at $0.6549 AUD=D3, having been as high as $0.6566 overnight. Resistance lies at $0.6580 and $0.6616, with major support at $0.6419.

The kiwi dollar paused at $0.5726 NZD=D3, after touching a one-month top of $0.5751 the previous session. Support comes in at $0.5704 and last week's trough of $0.5581.

The kiwi has been on the rise since the Reserve Bank of New Zealand flagged it was likely done cutting interest rates, leading investors to wager the next move would be a hike albeit not until late 2026. 0#NZDIRPR

Appearing before lawmakers on Tuesday, the new head of the RBNZ, Anna Breman, said her top priority would be keeping inflation low and stable while supporting economic growth.

Two-year swap rates NZDSM3NB2Y= have climbed 30 basis points in a week to stand at 2.88%, while 10-year yields NZ10YT=RR reached a three-month peak of 4.44%.