Aussie dollar steady amid global risk, rate hikes

The Australian dollar navigated a turbulent global landscape on March 12, as escalating Middle Eastern tensions and a surge in oil prices toward $100 a barrel sparked a wave of risk aversion.

Despite the headwinds, the local currency remained remarkably resilient, bolstered by a significant hawkish shift in domestic interest rate expectations.

While the Aussie dipped slightly to $0.7141 against the greenback, it continued to test long-term resistance levels, having recently notched a 35-year peak against the yen and a 13-year high against the New Zealand dollar at NZ$1.2110.

The underlying strength is primarily driven by a consensus among Australia's major financial institutions that the Reserve Bank of Australia will act decisively to curb stubborn inflationary pressures.

Analysts at ANZ have joined their peers in forecasting a quarter-point hike to 4.10% at the upcoming March 17 meeting, with a further move to 4.35% anticipated by May.

Economists note that the conflict-driven spike in energy costs has created a fresh sense of urgency for the central bank to anchor inflation expectations.

Market pricing now reflects a 79% probability of a hike next week, a sharp increase from earlier estimates.

Goldman Sachs analysts have also brought forward their tightening timeline, citing recent hawkish rhetoric from RBA officials.

As the spread between Australian three-year bond yields and US Treasuries widens to 89 basis points, the "Aussie" remains an attractive prospect for investors, even as global volatility persists.