SYDNEY: The Australian and New Zealand dollars got a rare lift on Thursday while bond yields hit historic lows after the U.S. Federal Reserve flagged rate cuts ahead and stoked wagers on policy easing worldwide.
The Fed's reversal even overshadowed a dovish speech by Reserve Bank of Australia (RBA) Governor Philip Lowe that led markets to sharply narrow the odds on another cut in local rates as soon as July.
With the U.S. dollar under broad pressure, the Aussie edged up to $0.6895 and away from the week's trough of $0.6832. It still faces resistance around $0.6910 and $0.6940.
The kiwi bounced to $0.6570 and left behind the recent low of $0.6488. It faces resistance at $0.6590.
Lowe's open acknowledgement that one cut in rates would not be enough to revive the economy, led analysts at CBA and NAB to bring forward the likely timing of an easing to July from August. The central bank's board next meets on July 2.
"We believe there is a more pressing need to deliver stimulus given the economy has lost some momentum and reflecting our weaker economic outlook," said NAB chief economist Alan Oster. "In brief, the RBA is behind the curve and needs to catch up quickly."
Futures lifted the probability of a July cut to 76% <0#YIB;>, from less than 50% before Lowe's speech. A move to 1% is more than fully priced by August, and yet a further easing to 0.75% by Christmas.
Yields on three-year government debt dived to a fresh record low of 0.922%, while futures climbed 4.5 ticks to a peak of 99.115. The 10-year contract also added 4.5 ticks to an all-time high of 98.700.
Bonds had already been rallying after the Federal Reserve opened the door to rate cuts as soon as July in a battle with global and domestic economic risks.
In a surprisingly aggressive move, the bulk of Fed policymakers slashed their rate outlook for the rest of the year by roughly half a percentage point.
The futures market responded by not only fully pricing in a quarter-point cut in July, but a real chance of a 50 basis-point easing.
There are 75 basis points of cuts implied for this year, stretching to 100 basis points by next June.
So far, the market only has another 50 basis points of RBA easing priced in given the Fed is starting from a higher base.
The prospect of cheaper money globally and a drop in the U.S. dollar was also a heady brew for many of the commodities that Australia exports.
Gold cracked the A$2,000 an ounce barrier for the first time, while iron ore traded in China climbed to near record peaks at the equivalent of A$172 a tonne.
In New Zealand, data on gross domestic product showed the economy grew a solid 0.6% in the March quarter and 2.5% for the year, though the detail on household spending was softer.
Two-year yields hit an all-time low of 1.14%, far below the cash rate, as investors wagered the Reserve Bank of New Zealand (RBNZ) might feel forced to cut rates at its meeting next week given the global shift to stimulus.