Australia, NZ dollars hit anew as risk sentiment sours, yields dive

SYDNEY: The Australian and New Zealand dollars took a sharp turn lower on Friday as fresh losses in global stocks soured risk sentiment and local yields dived on wagers aggressive rate cuts would be needed to safeguard domestic economies.

Longer-dated bonds boasted their best day in two years as markets moved to price in 100 basis points of cuts from the Reserve Bank of Australia this year, compared to 75 basis points just a couple of days ago.

“On the information we have to hand, the market reaction and past RBA responses to global shocks, more aggressive RBA easing now seems more likely than not,” said Adam Boyton, head of Australian economics at ANZ.

“Given the likely impacts on global growth and those already evident in market sentiment, we now expect the RBA to ease in May, July and August,” he added.

“Indeed, we would not rule out a 50 bp cut in May, if sentiment sours and the global growth outlook deteriorates sufficiently.”

Swap markets now imply around a 90% chance the RBA will cut by a quarter point when it meets on May 18, up from 70% early in the week, and despite policymakers sounding cautious earlier in the week about easing.

The shock from US President Donald Trump’s tariffs continued to hammer equity markets as analysts warned of a possible global recession, bad news for the Antipodeans that rely on exports of commodities to underpin growth.

As the mood worsened, the Aussie ran into heavy selling and dropped 1.3% to $0.6243.

That took it back toward a one-month trough of $0.6219 hit at the start of the week and a long way from an overnight top of $0.6390.

The kiwi dollar shed 1.2% to $0.5721, having briefly been as high as $0.5852 overnight. Much of the selling was against the safe-haven Japanese yen, with the Aussie sinking 2% to a 20-month low of 90.81 yen.

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The euro also spiked 1.3% to the highest since March 2020 at A$1.7768.

In the bond market, 10-year yields were down at 4.181%, having fallen a whopping 29 basis points for the week so far.

Wagers on rate cuts saw three-year bond futures hit a six-month top, having surged 26 ticks on the week to 96.600.

“Recent developments in global trade policy have a clear dovish read-through for both the RBA and the RBNZ,” said Andrew Boak, an economist at Goldman Sachs.

“We expect downward revisions to both growth and inflation will catalyse a materially dovish pivot at the RBA over the coming weeks.”