The Australian dollar held near $0.706, trading in a tight range close to three-year highs, as investors weighed the economic implications of the ongoing conflict in the Middle East. Prospects of potential talks between the US and Iran raised hopes of reduced tensions and the resumption of oil shipments through the Strait of Hormuz, though the outlook remained uncertain. A report on Wednesday suggested that Iran’s Ministry of Intelligence was open to discussions with Washington aimed at ending the conflict; however, a ministry source later denied this.
Domestically, Australian household spending inched higher in January after declining in December, signalling a loss of consumer momentum that could ease pressure on the Reserve Bank of Australia. At the same time, the economy picked up pace in the December quarter, fuelling inflation but also delivering gains in productivity and a moderation in labour costs. Against this backdrop, markets are pricing in only a slim probability of a rate hike in March, while a move higher in May remains fully expected.