Australian dollar holds steady amid geopolitical tensions

The Australian dollar remained largely unchanged on Jan. 5 as renewed geopolitical tensions triggered a cautious retreat in global risk appetite, although elevated domestic bond yields offered some support.

Early losses saw the AUD dip, before stabilising at $0.6686, just shy of last week’s 14-month high of $0.6727.

Analysts noted that the commodity-linked currency often moves as a proxy for global risk sentiment, reacting even to distant events such as US military action in Venezuela.

Meanwhile, the New Zealand dollar slipped 0.1% to $0.5760, below its recent peak of $0.5853, with chart support seen around $0.5736–$0.5740.

The Australian currency's resilience was underpinned by expectations of higher interest rates at home, pushing 10-year government bond yields to 4.81%, a premium of 67 basis points over US Treasuries.

Market pricing suggests a roughly 39% chance of a February cash rate hike by the Reserve Bank of Australia, depending Jan. 7’s November consumer price data, which may show a slight easing of headline inflation to 3.7% and core inflation around 3.2–3.3%.

In contrast, the Reserve Bank of New Zealand appears to have concluded its aggressive easing cycle, with markets largely discounting an interest rate increase before September, although pricing for an October hike has risen to 76%.