Australia, the New Zealand dollar jumps against the yen, bonds are beaten – Business & Finance
SYDNEY (Reuters) – The Australian and New Zealand dollars surged against the yen on Friday after the Bank of Japan stubbornly stuck to its ultra-easy policies, while worries about a U.S. economic slowdown helped recover US dollar losses.
The Aussie jumped 1.4% to 94.42 yen after the BOJ recommitted to keeping yields near zero despite fierce market pressure to start tightening like other central banks.
That, combined with a string of soft US data, helped the Aussie hold at $0.7025, well above a one-month low of $0.6850 hit early in the week. Resistance is now seen around $0.7069.
The Kiwi Dollar was also enjoying a reprieve at $0.6344, after rebounding from a two-year low at $0.6197 earlier in the week. It is facing resistance at $0.6396.
Speculation had been high that the BOJ could reverse its easing stance following a sharp rate hike by the Swiss National Bank, its first in 15 years.
The sudden move by the SNB encouraged bets that the Reserve Bank of Australia would accelerate its tightening. Futures now imply half-point hikes at each of the six remaining policy meetings this year.
That would take rates to 3.75% from the current 0.85%, by far the most aggressive tightening in modern times.
The mere risk of such an outcome hammered the Australian bond market, pushing three-year yields up 45 basis points for the week to their highest level since 2012 at 3.70%.
Yields on 10-year bonds rose 44 basis points for the week to 4.09%, the biggest rise in two decades. It also caused the Treasury bond spread to explode to its widest since early 2014 at 90 basis points.
“The spread is now threatening the 100 basis point level, where it was in the mid-50s just a few days ago,” said Damien McColough, head of rates strategy at Westpac. “This is unusually erratic price action, but one that reflects the uncertainty in the global and domestic backdrop.” “Volatility conditions are likely to persist, and this is not an environment conducive to Australian bond outperformance.” In New Zealand, two-year swap rates rose 51 basis points for the week to 4.50%, levels not seen since 2010.
Markets are betting that the Reserve Bank of New Zealand will more than double rates to 4.25% by the end of the year.
“Given inflation risks, our new forecast calls for the RBNZ to rise 50 basis points in the July, August and October meetings with increases of 25 basis points in November 22 and February 23,” said Prashant Newnaha, Senior Rates Strategist at TD Securities.