The Australian dollar was under fire on Friday as speculation about an early policy tightening in Europe contrasted with the scant chance of rate hikes at home and drove up bond yields abroad. The Aussie eased 0.3 percent to $0.8013 and away from last week's 2-1/2 year top of $0.8136. That left it down almost 1 percent for the week and threatening important support in the $0.7990/8000 area.
The euro was the main gainer, rising 1 percent overnight to a seven-week high of A$1.5575 amid reports hawks at the European Central Bank were pressing for an end to its asset buying campaign, perhaps by as early as September. As a result, German five-year bond yields climbed above zero for the first time in over two years.
The New Zealand dollar fared somewhat better thanks to a run of upbeat domestic data, though again there is scant chance of a domestic rate hike for some time to come. The kiwi was off 0.2 percent at $0.7380, but still not far its recent peak at $0.7435.
New Zealand government bond prices slipped in line with Treasuries, lifting yields as much as 5 basis points at the long end of the curve. Australian bond futures likewise eased only a little compared to the heavy losses seen in bunds and Treasuries.
The three-year bond contract was off 1 tick at 97.825, while the 10-year contract dipped 2.5 ticks to 97.1700. "It is not unusual for AUD/EUR to trade sideways to down when the Eurozone economy accelerates, joining - and driving - a stronger global economy," said Richard Grace, chief currency strategist at CBA.
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