Australia, NZ dollars firm as greenback falters, domestic data cheers

By Wayne Cole

SYDNEY, Jan 12 (Reuters) - The Australian and New Zealand dollars bounced on Monday as fresh concerns over the independence of the U.S. Federal Reserve undermined the greenback, while the Aussie drew added support from strong domestic data.

Markets were roiled when Fed Chair Jerome Powell said the Trump administration had threatened him with a criminal indictment and served grand jury subpoenas, an action Powell called a "pretext" aimed at putting further pressure on the central bank to lower interest rates.

"It's another threat to Fed independence," said Kyle Rodda, a senior market analyst at Capital.com. "Not good as far as the markets are concerned. Negative for the U.S. dollar and Treasuries."

Investors marked the greenback down broadly, lifting the Aussie 0.2% to $0.6698 AUD=D3, and away from support around $0.6660. In order to extend the rally, the currency needs to reclaim the 15-month peak of $0.6766 logged last week.

The kiwi dollar added 0.2% to $0.5744 NZD=D3, having hit a five-week trough of $0.5712 at one stage on Friday.

Local data were upbeat, with Australian household spending jumping 1% in November after an already robust 1.4% gain in the previous month.

Even after allowing for rising prices, the data pointed to a likely strong increase in sales volumes in the fourth quarter and a pickup in economic growth that could add to the case for a tightening by the Reserve Bank of Australia.

Markets imply around a 28% chance the RBA could hike its 3.6% cash rate a quarter point when it next meets on February 3, rising to an 80% probability by May. 0#AUDIRPR

"Household consumption is set for a strong Q4 outcome, with no sign of any pay back from October's surge," said Jessie Cameron, a senior associate economist at NAB.

"Ongoing momentum in consumer demand should leave the RBA uncomfortable that cyclical conditions will put sufficient downward pressure on inflation over the forecast horizon."

That strength could make it harder for the central bank to hold the line if consumer price figures for the fourth quarter, due later this month, also top forecasts.

The RBA had been looking for core inflation to rise an annual 3.2%, still stubbornly above its long-term target range of 2% to 3%.