Australian dollar braces for hawkish RBA, bond yields hit two-year high

By Stella Qiu

SYDNEY, Dec 8 (Reuters) - The Australian dollar was on edge on Monday as traders braced for a widely expected hold decision from its central bank this week but fretted about how hawkish the accompanying commentary would be, sending bond yields to two-year highs.

The Aussie was little changed at $0.6638 AUD=, having gained 1.4% last week to $0.6650, the highest since mid-September. A break of resistance around $0.6628 has opened the way to the September peak of $0.6706.

The kiwi dollar idled at $0.5784 NZD=, having added 0.6% last week to as high as $0.5787. It was facing some major resistance around $0.5801.

The Reserve Bank of Australia holds its last meeting of the year on Tuesday and a run of hot data on inflation, economic growth and household spending has wiped out any chance of a cut to the 3.60% cash rate. 0#AUDIRPR

Just a couple of weeks ago markets were still pricing at least one more rate cut early next year, but now they fully imply the next move will be up and possibly as soon as May, which is about 50% priced in. 0#AUDIRPR

A key question is whether board members discussed raising interest rates, which would send a very hawkish signal to markets.

"We still think the RBA will remain somewhat cautious. It seems too early for the RBA to explicitly say they are now considering rate hikes," said George Tharenou, an economist at UBS, who is calling for a rate hike by the end of next year.

"That scenario would seem more likely only after another few months of data, which could lead to revisions in their Feb-26 SOMP," he said, referring to the RBA's Statement on Monetary Policy, which contains its quarterly economic forecasts.

Yields on 10-year Australian government bonds AU10YT=RR hit 4.741% on Monday, the highest since November 2023 and breaching a major chart level of 4.721%. The spread over Treasuries has blown out to 60 basis points, from just 17 basis points a month earlier, the biggest premium since August 2022.

Closely watched jobs data are due on Thursday, with forecasts centred on a gain of 20,000 new jobs in November and a slight pickup in the jobless rate to 4.4% from 4.3%.

Across the Tasman Sea, Anna Breman, the new governor of the Reserve Bank of New Zealand, will meet reporters on Wednesday, where she will make some introductory remarks before taking some questions.