Australian dollar dips as RBA rate hike proves a close call

By Wayne Cole

SYDNEY, March 17 (Reuters) - The Australian dollar dipped on Tuesday after the country's central bank board hiked interest rates as many expected but only by a single vote, suggesting further increases were far from a done deal.

The Aussie eased 0.1% to $0.7059 AUD=D3, though that followed a 1.3% rally overnight off a low of $0.6985. Support lies at $0.6945, with resistance at the recent 45-month top of $0.7122.

The Reserve Bank of Australia lifted its cash rate by 25 basis points to a 10-month high of 4.10%, warning inflation risks had tilted to the upside in part due to a recent spike in petrol prices driven by the conflict in the Middle East.

However, the vote on the nine-member board was razor thin at 5-4, the closest call since the RBA began revealing voting last year. This led markets to scale back the chance of a third straight hike in May to around 25%, from 70%. 0#AUDIRPR

The RBA statement sounded hawkish overall and noted that the Middle East conflict carried risks for inflation, even if the outcome was highly uncertain.

Investors had been leaning toward a rise after top RBA officials warned the meeting would be "live" as core inflation of 3.4% was stubbornly stuck above the central bank's target range of 2% to 3%. AU/INT

"The decision was made by the narrowest of margins, raising some risks to our view that a follow-up hike could come as soon as May," said Abhijit Surya, a senior APAC economist at Capital Economics.

"The split vote appears to have come down to the elevated uncertainty about the evolution of the Iran conflict," he added. "Even so, with the policy settings only marginally tighter than neutral, we think there's a compelling case for the Bank to raise rates further and bring inflation under control."

Yields on 10-year bonds AU10YT=RR were down 5 basis points at 4.941%, having recently topped 5.0% for the first time since mid-2011. The spread over Treasuries had also widened to 72 basis points and levels not seen since mid-2022.

The kiwi dollar edged back 0.3% to $0.5849 NZD=D3 after bouncing 1.5% overnight from a trough of $0.5780. It has support at $0.5775 and $0.5712, while resistance lies around $0.5870.