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Australia, NZ dollars catch a break as bears turn on euro

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SYDNEY — The Australian and New Zealand dollars gained a respite on their U.S. counterpart on Tuesday, as sellers concentrated on the euro amid an intensifying energy crisis across Europe.

The Aussie nudged up 0.3% to $0.6895, after finding solid support around $0.6860 for a second session. It faces immediate resistance around $0.6900, with more at $0.6929.

The kiwi added 0.4% to $0.6189, after bouncing from a one-month low of $0.6157 overnight. Resistance now lies around $0.6210/15.

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The Aussie drew indirect support from a sharp fall in the euro, which saw the single currency drop 0.9% overnight to reach A$1.4418 and near lows touched last April.

The euro has been undermined by a stratospheric rise in European energy prices which is stoking inflation and forcing central banks to hike rates even at the risk of recession.

Australia, in comparison, is a net exporter of energy and high prices for liquefied natural gas have contributed to a run of record trade surpluses this year.

Yet rising energy costs have also stoked domestic inflation and dragged on consumers, as evidenced by a survey showing service activity fell into contractionary territory in August.

The S&P PMI for services dropped to 49.6, the first reading under 50 in seven months, while manufacturing slowed to 54.5.

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Respondents said they were passing on rising costs for energy, labor and raw materials with the survey’s measure of selling prices rising sharply in August.

Markets are increasingly wagering the Reserve Bank of Australia (RBA) will raise its 1.85% cash rate by a further 50 basis points in September to fight inflation, forgoing a more modest hike.

Swaps and futures now imply a probability of between 65% and 80% of a half-point hike next month, while rates are seen peaking around 3.85% compared to 3.5% a week ago.

“The run of recent economic data suggests that the steam is coming out of the Aussie economy as rising interest rates and skyrocketing inflation bite,” said Ryan Felsman, a senior economist at CommSec.

“Home prices are falling sharply, job vacancies appear to have peaked, jobs were cut in July, wage growth remains tepid, retail spending has slowed and now services sector activity is contracting.” (Editing by Jacqueline Wong)



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