SYDNEY: The Australian and New Zealand dollars stepped back while bonds took a beating on Thursday as markets narrowed the odds on an early hike in US interest rates and a faster pace of stimulus withdrawal.
The Aussie faded to $0.7210, having again topped out at $0.7273 overnight.
The currency has spent the past two weeks zigzagging between $0.7184 and $0.7276 and a clear break of either could unleash a large move.
The kiwi dollar eased to $0.6788, after faltering at $0.6836 overnight. Major resistance still looms at $0.6855/57 with support around $0.6766.
Australia, NZ dollars get a timely lift from yen selling
Both lost ground after minutes of the Federal Reserve's last meeting hinted they might hike rates as early as March, when analysts had thought May or June were more likely start dates.
Futures quickly shifted to imply an almost 70% chance of a rise to 0.25% at the March Fed meeting and rates of at least 0.75% by the end of the year.
That lifted Treasury yields and the US dollar, while hurting stocks and risk-leveraged currencies.
"The FOMC minutes not only suggested a faster pace of rate hikes, but also an accelerated shrinkage of the Fed's balance sheet," noted analysts at RBC Capital Markets.
"The combination of equity risk-off while yields continue to rise would be an interesting one if it endures, and should be broadly supportive of the US dollar."
It certainly put pressure on Australian bonds as 10-year yields jumped to 1.835%, up from 1.55% a week ago and the highest since mid-November.
The Reserve Bank of Australia (RBA) has repeatedly insisted that a hike in domestic rates is not likely until 2023, but markets suspect it may have to follow the Fed and have a move to 0.25% priced in by June.
One positive sign globally was an upbeat reading on the Chinese economy from the Caixin services index which rose to 53.1 in December.
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