SYDNEY/WELLINGTON: The Australian and New Zealand dollars nursed hefty losses on Thursday, while bond yields jumped to their highest in a year-and-a-half as markets priced in more risk the Federal Reserve could start tapering its asset buying next month.
The biggest move of the session was in 10-year Australian bond futures which skidded to lows not seen since March 2012, tracking a sharp fall in US Treasury prices.
Minutes of the Fed's October policy meeting prompted speculation it could begin tapering earlier than first thought, even as investors have pushed out the timing of any actual increase in the funds rate. The 10-year Australian bond futures contract fell as far as 95.725, while a break under 95.600 would test the lowest in nearly three years.
Also weighing on the market was a bumper issue of A$5.9 billion in 2033 government bonds earlier this week, with some investors offloading 10-year paper to accommodate the new bonds.
"There was residual selling after the government offer and overnight we had the Fed minutes adding to the pressure," said Sallie Auld, a strategist at JPMorgan, seeing the long-dated part of the curve remaining vulnerable in the short term.
The three-year bond contract was down 4 ticks at 96.820. Australian 10-year cash bond yields jumped to 4.33 percent, the highest in 20 months.
AUSSIE, KIWI LICKING WOUNDS
The Aussie slipped 0.4 percent to $0.9300, having already lost 1 percent on Wednesday. That took it closer to two-month lows of $0.9260 touched last week. It took an extra blow when private data showed manufacturing activity in China barely grew in November.
The Australian dollar is sensitive to news out of China, a key export market. Also weighing on the Antipodeans was a broadly weaker euro after a Bloomberg report said the European Central Bank was considering cutting its deposit rate below zero.
The New Zealand dollar slipped to a session low of $0.8239, the lowest in a week.
It had fallen sharply from $0.8397 on Wednesday after failing to clear key resistance at $0.8400.
Losses against the greenback pushed the kiwi down to 82.70 yen, pulling it back from 84.00 hit in offshore trade.
It even struggled against a weak euro at NZ$1.6240.
Major support now lies in the $0.8166/90 area which could be threatened if Reserve Bank of New Zealand Deputy Governor John McDermott tries to talk down the currency when he delivers a speech on foreign exchange on Friday.
New Zealand government bonds extended losses, pushing yields as much as 5 basis points higher along the curve.
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