Australian dollar gets backing from energy, yield buffers

SYDNEY: The Australian dollar was benefiting from a rare safe haven bid on Tuesday as the country’s energy abundance offset the impact of rising oil prices, while the chance of interest rate hikes at home provided yield support.

The Aussie was 0.2% firmer at $0.7101, having been as low as $0.7033 at one stage on Monday. Resistance now lies at $0.7135 and the recent three-year peak of $0.71465.

The currency had been sold early on Monday as a liquid proxy for global risk, but steadily recovered as investors recognised Australia was a net energy exporter, mainly through liquefied natural gas and coal.

The contrast to Japan and the EU, both energy importers, saw the Aussie hit a 35-year top on the yen at 111.78 and a one-year high on the euro at 0.6076.

It got an added boost when Reserve Bank of Australia Governor Michele Bullock said the board’s March policy meeting would be “live” for a possible hike in rates.

Investors have tended to assume the RBA would wait for first-quarter inflation figures due in late April before deciding whether to raise the 3.85% cash rate in May.

Bullock said she wanted to “dissuade” anyone from assuming that.

Markets moved grudgingly to imply around a 28% chance of a quarter-point rise at the next meeting on March 17, while fully pricing a tightening for May.

They also imply around a 75% of a further rise to 4.35% by year-end.

“While RBA staff forecasts imply a need for at least one additional rate rise, the communications suggest the Board seems inclined to test that assessment against incoming data,” said Taylor Nugent, a senior economist at NAB.

Figures on gross domestic product are due on Wednesday and there looks to be some upside rise to forecasts of 0.6% growth following data on net exports and government spending.

“We expect the RBA to lift rates to 4.1% in May and then remain on hold until late 2027,” added Nugent.

Bullock’s hawkish comments combined with a selloff in Treasuries to push Australian 10-year bond yields up 8 basis points to 4.714%, offering a hefty premium of 68 basis points over US debt.

The New Zealand dollar had a rougher time as the country imports most of its oil, leaving the currency stuck at $0.5946 after losing 0.9% overnight to touch a five-week trough at $0.5917.