Aussie holds ground as US dollar firms, eyeing small weekly gains

SYDNEY, Jan 16 (Reuters) - The Australian dollar held its ground on Friday, lifted by a rebound in global stocks and unfazed by a firmer U.S. dollar on the back of growing expectations that interest rates there will be on hold for longer.

The Aussie hovered at $0.67 AUD=D3, having eked out a small gain of 0.2% overnight to bounce back from a key support level of $0.6660. For the week, it is set for a small gain of 0.2%.

That was despite the rise in the greenback, which hit a six-week high after U.S. data - from lower jobless claims and upbeat regional manufacturing surveys - led markets to push out the expected timing for the next Federal Reserve rate cut to June or July.

The Aussie also pushed higher on the crosses. It jumped 0.6% overnight on the euro to 0.5770 AUDEUR=R, just shy of an eight‑month peak, and gained 0.4% on the yen to 106.26 AUDJPY=R, near an 18‑month high.

Across the Tasman Sea, data showed food prices in New Zealand fell 0.3% in December but electricity and gas prices were up strongly, and costs for international flights jumped 33%.

That led analysts to revise up their expectations for the fourth-quarter inflation. Both Westpac and ANZ expect CPI to rise 0.5% last quarter, higher than what the central bank had forecast. For the year, CPI likely rose 3%, hitting the top of the 1-3% band targeted by the Reserve Bank of New Zealand.

"Stronger inflation than the November MPS forecast is likely to keep the Monetary Policy Committee cautious," said Miles Workman, a senior economist at ANZ.

"But with underlying inflation still going the right way, the bar for delivering anything other than a hold in February remains high."

Markets imply almost no chance of a move in the 2.25% cash rate at the RBNZ's next meeting on February 18, with the first rate hike not fully priced in by October this year. 0#NZDIRPR

The kiwi inched up 0.1% to $0.5748 NZD=D3, after easing 0.1% overnight. It is set for a small rise of 0.2% this week, with resistance around $0.5810.