WELLINGTON/SYDNEY: The Australian and New Zealand dollars held modestly firmer on Thursday, underpinned by stronger Asian stocks, while bond prices fell to their lowest since early May on fading expectations of imminent easing globally.
The biggest movers of the session were Australian bond futures, which skidded to three-month lows, tracking a fall in US Treasuries.
"There has been a fair re-rating of easing expectations in the market with heavy yield rises in both Europe and U.S," said Charlie Jamieson, co-head of fixed income at Bank of America Merrill Lynch in Sydney.
Upbeat US retail sales data bolstered the view that a recent slowdown in US growth will prove temporary, cooling expectations of monetary easing by the Federal Reserve.
"In Australia, there is still a huge amount of yield to be derived and the positioning has clearly been skewed to the long side. So when the market starts to sell off, it hits the stops fairly quickly and the whole thing cascades higher in bond yields," Jamieson said.
The 10-year Australian future contract fell 0.13 points to 95.595, after a break of key support at 96.700 triggered technical selling. Charts indicate the next level of major support is around 96.500.
The three-year contract eased 0.12 points to 97.100, its lowest since early May, with key support seen around 96.800.
Australian bonds have been major beneficiaries of a global yield hunt, particularly from central banks and sovereign funds from far afield.
With Australian 10-year bond yields at around 3.41 percent, they offer an attractive alternative to those in most developing countries. Australia is one of the few liquid triple-A sovereign debts left.
New Zealand government bonds followed suit with yields up to 18 basis points higher. The 10-year bond yield jumped to 3.86 percent, a level not seen since May 3.
AUSSIE, KIWI HOLD THEIR GROUND
The Antipodeans held gains on the euro which took a sudden reversal overnight. The euro last stood at A$1.1710, having dipped as low as A$1.1669 and was edging closer to an all-time troughs of A$1.1597 hit earlier this month.
Likewise, it sat at NZ$1.5219 against the kiwi, from a trough of NZ$1.5191 late Wednesday.
Traders say the Antipodean currencies may have benefited from the euro recycling of Swiss intervention money into other currencies, like the Aussie.
The euro pull-back lifted the Aussie and kiwi against their US counterpart with the Aussie edging up to $1.0481, from a two-week trough around $1.0456 on Wednesday.
Technicals point to some upward correction, with Tuesday's high of $1.0540 seen as the next resistance, ahead of Aug. 10's high of $1.0578. Support was found at around $1.0455.
The New Zealand dollar last stood at $0.8075, from a three-week low of $0.8037 on Wednesday. It avoided a further slide thanks to an ongoing rise in global prices of dairy products, New Zealand's biggest export, at the latest Fonterra auction.
But traders said a pick-up in demand for the US dollar would keep the kiwi on the backfoot in the near term.
"We could break the range to the downside. The euro weakening (versus the dollar) is probably going to help us test the downside," said Alex Sinton, senior FX dealer at ANZ.
Still, he added that the kiwi was supported around $0.8040. That level roughly represents a trough hit in offshore trade, and the 23.6 percent retracement of the kiwi's climb from June early this month, when it hit a three-month high.
Investors were awaiting a slew of data due later on Thursday including UK retail sales and euro zone inflation reports. The US has factory activity in the mid-Atlantic region, housing starts, building permits and weekly jobless benefit claims.
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