Australian dollar slips as consumer and business confidence slump

SYDNEY, April 14 (Reuters) - The Australian dollar slipped on Tuesday as surveys revealed a free-fall in business and consumer confidence due to the Iran war in an ominous sign for the economic outlook, while the kiwi held near a three-week top on a rally in global equities.

The Aussie AUD=D3 edged 0.2% lower to $0.7081, having rallied 0.4% overnight to as high as $0.71. Resistance appears to be firm at 71 cents, while support is around $0.6980.

The New Zealand dollar NZD=D3 was, however, 0.1% firmer at $0.5871, after gaining 0.5% overnight to a three-week top of $0.5873. It has been recouping some lost ground against the Aussie, up 0.3% on Tuesday NZDAUD=R, since its central bank unexpectedly turned hawkish last week.

The near-term fate of the two Antipodeans, which are often sold as proxies for global risk, is largely dependent on the developments in the Middle East. Sources told Reuters dialogue was still alive after peace talks between U.S. and Iran failed without a deal.

Local surveys showed Australia's business and consumer confidence crashed as the economic outlook darkened due to fallout from the Iran war, leaving policymakers in a tricky spot after two rate rises this year to tame inflation.

Reserve Bank of Australia Deputy Governor Andrew Hauser warned late on Monday that stagflation is a central bank's nightmare, adding policymakers are monitoring consumption very closely.

"Both survey results support our view that the two shocks the Australian economy has faced recently - RBA back-to-back rate rises and sharply higher fuel prices - are likely to sharply weaken activity," said Paul Bloxham, HSBC's chief economist, Australia and New Zealand.

"Our central case sees the RBA lifting its cash rate in May, and we then see the weakening in activity feeding through to weaker employment such that the RBA does not lift its cash rate any further," he said.

Markets imply a 66% chance of another quarter-point rise in May, and see rates peaking around 4.6% by year-end, equivalent to two more rate hikes. 0#AUDIRPR

Across the Tasman Sea, markets imply around a 40% chance that the Reserve Bank of New Zealand will lift its 2.25% cash rate by 25 basis points in May, while a hike by July has been more than fully priced in.