Aussie dollar hits three-year high on yields

The Australian dollar powered to fresh heights on Feb. 13, fueled by a significant widening in yield spreads that has repositioned the currency as a high-carry favorite among global investors.

The Aussie climbed 0.3% to a three-year peak of $0.7146, capitalising on a fundamental shift in interest rate differentials that saw three-year Australian debt paying 75 basis points over US Treasuries—a stark reversal from the 60-basis-point deficit recorded just one year ago.

The bullish momentum was catalysed by the Reserve Bank of Australia’s recent pivot from monetary easing to active tightening.

Appearing before parliament, RBA Governor Michele Bullock maintained a hawkish stance, warning that further hikes remain on the table if inflation proves "stubborn."

Market participants have swiftly adjusted to this reality, now pricing in an 80% probability of a rate hike in May, with expectations that the cash rate could reach 4.35% by year-end.

The currency's dominance extended beyond the greenback, with the Aussie hitting a 12-month high against the euro and a 10-month top against the Swiss franc.

The AUD/NZD cross reached levels not seen since 2013, as the Reserve Bank of New Zealand is expected to remain on hold at 2.25% next week.