The Australian sharemarket rose on Wednesday as investors piled into heavyweight mining and banking stocks, helping to offset an increasing likelihood that Reserve Bank of Australia will raise interest rates next week.

The S&P/ASX 200 Index was up 38 points, or by 0.4 per cent, to 8730.60 at 12.07pm AEDT, with just three of the 11 sectors up.

The move followed a surge in the Australian dollar to US71.70¢ and a jump in bond yields rose after hawkish comments from RBA deputy governor Andrew Hauser on Tuesday prompted traders to ramp up their b ets for a rate rise on March 17.

The deputy governor warned in a podcast that failing to act decisively to curb inflation expectations could lead to “toxic” high inflation and be “bad for everyone”.

Money markets are priced in a 77 per cent chance of a rate increase, up from 39 per cent before Hauser’s comments. Economists have also reacted swiftly with National Australia Bank and Westpac the first of the major lenders to bring forward their rate rise expectations to next week.

But a strong rally in the heavyweight mining and bank stocks is keeping the ASX in the black for now.

Materials were the strongest as BHP gained 1.3 per cent after falling by as much as 15 per cent from its peak last week. Lynas Rare Earths soared 14.4 per cent as it extended its long-term supply agreement with Japan Australia Rare Earths to 2038, locking in offtake for key rare earth materials used in that country.

Gold miners also rose as bullion climbed above $US5200 an ounce against a weaker US dollar. Ora Banda Mining rocketed 17.6 per cent after the company reported a major upgrade to its gold resource base at the Round Dam deposit, while Northern Star rose 2.9 per cent. Other miners, including Iluka Resources and Champion Iron, climbed 9.9 per cent and 7.3 per cent, respectively.

The prospect of higher interest rates helped the major banks due to expected higher net interest margins. National Australia Bank, Commonwealth Bank and Westpac were all up by about 1 per cent, while ANZ added 1.4 per cent.

Energy reversed earlier gains as oil turned lower after a report said the International Energy Agency has proposed the largest release of oil reserves in its history. Woodside Energy fell 0.4 per cent, Santos 0.1 per cent and Ampol by 0.5 per cent.

Rate-sensitive stocks were also sold in technology, real estate and retail. WiseTech Global dropped 4.2 per cent, Goodman Group 1.9 per cent and JB Hi-Fi by 2.6 per cent.

Stocks in focus

In company news, DroneShield rose 1.5 per cent as it established counter-drone manufacturing in the European Union, marking a major expansion of the company’s industrial footprint and manufacturing capacity in that region.

GQG Partners dropped 7 per cent as net outflows for February totalled $US3.2 billion. It came as funds under management rose to $US172.9 billion ($242.9 billion).

Macquarie Technology Group rose 3 per cent as it secured a $200 million hybrid investment from the National Reconstruction Fund Corporation to support the expansion of sovereign digital infrastructure and cybersecurity services.