Australian, NZ dollar rebound as oil unwinds record surge

By Stella Qiu

SYDNEY, March 10 (Reuters) - The Australian and New Zealand dollars held on to their overnight gains on Tuesday, helped by a sharp reversal in oil's surge as investors hoped the Middle East war might end sooner and prevent deeper damage to the global economy.

Brent crude futures LCOc1 fell 10% in Asia to $89 a barrel, reversing Monday's record surge to as high as $119.5, amid reports that G7 nations were prepared to release oil reserves and that U.S. President Donald Trump was weighing an easing of sanctions on Russian oil as the Strait of Hormuz remained effectively closed.

Separately, Trump said in a CBS News interview that he thinks the war against Iran "is very complete" and that Washington was "very far ahead" of his initial four- to five-week estimated time frame.

That kindled hopes that the war might end sooner. Wall Street clawed its way back from a steep selloff to close higher, Treasury yields fell as inflation fears eased a little and the dollar lost some of its recent shine.

As a result, the risk-sensitive Aussie AUD=D3 held at $0.7068, having bounced 0.6% overnight and away from a low of $0.6956. That put it back above 70 cents, having done multiple round-trips since war in the Middle East broke out and triggered fresh market volatility.

The kiwi dollar NZD=D3 was also steady at $0.5932, having also rallied 0.6% overnight and off a low of $0.5848. Major support lies at $0.5837, with resistance at $0.5954 and $0.6012.

Imre Speizer, a strategist at Westpac NZ, said the kiwi dollar's reaction to the Iran war has so far been moderate but bond yields and oil have delivered outlier reactions.

"A risk-averse response is to be expected, although it is noteworthy that past events have typically not caused large reactions in the NZD," said Speizer, noting the kiwi on a trade-weighted basis has not changed much.

At home, surveys showed that consumer sentiment in Australia bounced a little in March after the rate hike last month, although the mood was steadily darkening as the conflict in the Middle East widened.

Business sentiment turned negative for the first time in 11 months in February but conditions held steady and inflation measures showed price pressures were picking up.

Tracking their overseas counterparts, three-year Australian government bond yields AU3YT=RR slid 10 basis points to 4.461%, after jumping 13 bps to reach a 15-year high of 4.622% on Monday.

Investors pared bets of more rate hikes coming from the Reserve Bank of Australia, with a total tightening of 56 bps expected for the year, down from 64 bps a day earlier.

Across the Tasman Sea, two-year New Zealand swap rates NZDSM3NB2Y= tumbled 12 bps to 3.1805%, having surged 21 bps on Monday.