Australia dollar restrained by risk aversion, supported by rates

By Wayne Cole

SYDNEY, March 12 (Reuters) - The Australian dollar was restrained by a fresh bout of global risk aversion on Thursday as oil prices again climbed toward $100 a barrel, though the prospect of higher interest rates at home kept it well underpinned.

Reports of Iranian attacks on shipping in the Gulf nudged the Aussie back a touch to $0.7141 AUD=D3, after it rose 0.5% overnight despite a generally firmer U.S. currency. Resistance is up at its 45-month top of $0.71875, and then around $0.72825.

It had also scored a fresh 35-year peak on the yen at 113.98 AUDJPY=R, and reached its highest on the euro since late 2024 at 0.6202 euros AUDEUR=R.

The kiwi dollar again lagged at $0.5896 NZD=D3, in part because it was being sold heavily against the Aussie which climbed to a 13-year top at NZ$1.2110 AUDNZD=R.

The Aussie continued to benefit from wagers the Reserve Bank of Australia would raise its cash rate a quarter-point to 4.10% next week as it battled to contain inflation.

Analysts at ANZ on Thursday joined the other three major Australian banks in changing their call to a March hike, and predicting a further move to 4.35% in May.

"The clearest and most immediate impact of the Middle East conflict on Australia is higher inflation...creating more urgency to move quickly to contain inflation expectations," said Adam Boyton, head of Australian economics at ANZ.

"Once the cash rate gets to 4.35%, the RBA will likely judge policy as restrictive, especially when compounded by the impact of higher inflation on disposable incomes."

Markets imply a 79% chance of a hike at the RBA's meeting on March 17, up from around 20% before the conflict in the Middle East began. Another rise to 4.35% is fully priced by August, with 4.60% seen as a real risk by year-end. 0#AUDIRPR

Goldman Sachs has also shifted to a March hike, citing the decidedly hawkish message delivered by RBA Deputy Governor Andrew Hauser earlier this week.

"A third consecutive rate hike in May is a material risk," warned Goldman analyst Andrew Boak.

"However, having front-loaded the tightening cycle and set financial conditions at a clearly restrictive level, we expect the RBA to pause, assess and ultimately remain on hold through 2026."

Three-year bond yields AU3YT=RR have already hit highs last seen in 2011 at 4.622%, while the spread over Treasuries has widened to a tempting 89 basis points.