Australian shares: The Australian and New Zealand dollars experienced a sharp decline on Friday following reports of Israeli strikes on Iran. This news triggered a surge in safe-haven demand for the U.S. dollar and local bonds.

The Australian dollar fell by 0.7 per cent to $0.6376, marking its lowest level since November and nearing a significant support level of $0.6340. Similarly, the New Zealand dollar dropped by 0.6 per cent to $0.5866, testing a crucial support level of $0.5863. Both currencies were on track for weekly losses of 1.4 per cent and 1.2 per cent, respectively.

The escalation of tensions in the Middle East, as reported by ABC News citing a U.S. official, prompted a swift market reaction characterized by a "risk-off" sentiment. This led to a rally in gold and oil prices, while Asian stocks plummeted nearly 2 per cent.

Khoon Goh, head of Asia research at ANZ, noted the rapid response of the markets to the news reports, emphasizing the significant risk aversion among investors. There are concerns that this could trigger further escalation in the region, leading to heightened volatility in global markets.

In addition to the U.S. dollar, the Japanese yen also benefited from safe-haven demand, causing the Australian and New Zealand dollars to weaken against it. The Australian dollar saw its largest daily drop since October, declining by 1.4 per cent to 97.9 yen, while the New Zealand dollar lost 1.4 per cent to 90.01 yen, reaching a one-month low.

Meanwhile, local bonds followed the trend of U.S. Treasuries, rallying in response to the risk-off sentiment. The three-year government bond yield in Australia fell by 9 basis points to 3.791 per cent, while the 10-year government bond yield slid by 8 basis points to 4.209 per cent..