Australia, NZ dollars steady after pullback in risk, eyes on CPI

By Wayne Cole

SYDNEY, Feb 24 (Reuters) - The Australian and New Zealand dollars steadied on Tuesday after suffering a classic "risk-off" pullback as losses in equity markets and unease over U.S. tariff policy dented commodity currencies leveraged to global growth.

The Aussie was flat at $0.7059 AUD=D3, after slipping 0.5% overnight and away from a high of $0.7112. Support comes in at $0.7016 ahead of $0.6897.

The kiwi dollar was back at $0.5956 NZD=D3, having topped out at $0.6003 overnight. Major support lies at $0.5929 and a break would risk a return to the $0.5850 area.

The Aussie was underpinned by an ample yield spread as investors wager interest rates will more than likely rise again within the next few months, following a hike early in February.

Markets imply around a 70% chance the Reserve Bank of Australia will lift its 3.85% cash rate by 25 basis points in May, and are almost fully priced for a June move. 0#AUDIRPR

That outlook is expected to be reinforced by consumer price data for January due on Wednesday, where the annual pace is seen slowing only slightly to 3.7%, from 3.8%.

The key trimmed mean measure of core inflation is seen staying at 3.3% for the year. That would be the fifth straight month it has been above the RBA's target band of 2% to 3% and would add to the risk of a high outcome for the whole first quarter.

"For January, robust gains in electricity, health services and fruit and vegetables is being mostly offset by falling auto fuel, holiday travel and garments," Westpac analysts wrote in a note.

"Our preliminary estimate for the March quarter trimmed mean is 0.9% qtr, which will see the annual pace lift from 3.4%yr to 3.5%yr."

It was a 0.9% gain in the December quarter that prompted the RBA to hike this month, and a repeat would greatly increase the pressure for another move in May.

The central bank's head of economic analysis on Tuesday reiterated its concerns about pockets of sticky inflation, while floating the prospect of ultimately shifting to a monthly measure of core inflation for policy.

RBA Governor Michele Bullock will have a chance to react to the January CPI when appearing at a Melbourne University event on Wednesday evening.