(Updates prices and adds market pricing for ECB and BOE)
The Australian and New Zealand dollars enjoyed a much needed respite on Thursday, after weak global economic data raised hopes that central banks may not need to tighten much more, lifting risk assets and driving bond yields lower.
The Aussie AUD=D3 was near a one-week high at $0.6474, having rallied 0.9% overnight. It cleared a key resistance level of $0.6450, taking some pressure off a recent downward trend that had dragged it to fresh nine-month lows.
The kiwi dollar NZD=D3 was hovering at $0.5963, after rising 0.5% on Wednesday to a one-week top of $0.5984. It now faces resistance at $0.5996.
Having wallowed near lows for much of the week on concern about China's slowdown and a buoyant U.S. dollar, the two currencies found support after weak U.S. and European business activity fuelled concern about economic growth amid the most synchronised global tightening campaign.
In particular, the prospect of a sharp slowdown in Europe led investors to scale back interest rate expectations.
Markets now see a spilt chance that the European Central Bank might hold rates steady next month, after favouring an increase before. Interest rates in Britain are now seen peaking closer to 5.75%, rather than hitting 6%.
0#ECBWATCH 0#BOEWATCH The euro was last pinned at A$1.6781, having lost 0.7% overnight.
TD Securities on Thursday entered a long trade on the Australian dollar, targeting a 4% move over the next two months to $0.6740, as stretched short-term valuations suggest a reversal is imminent.
"In terms of technicals, 0.64 offers support and with momentum for AUDUSD becoming less negative, we think it is the beginning of a break out higher," said Ray Ng, FX quantitative strategist at TD.
For now, investor focus is turning to a speech from Federal Reserve Chair Jerome Powell at the Jackson Hole conference on Friday, which could also be a blow to stressed bond markets if he sounds in any way hawkish.
Local bond markets rallied in tandem with Treasuries. Australia's 10-year bond yields AU10YT=RR slumped 11 basis points to a two-week trough of 4.124%, while New Zealand's 10-year yields NZ10YT=RR also fell 9 bps to 5.015%, having hit a 12-year high of 5.185% earlier in the week.
