The Australian and New Zealand dollars jumped against the yen on Friday after the Bank of Japan stuck doggedly to its uber-easy policies, while worries about a U.S. economic slowdown helped recoup losses on the U.S. dollar.
The Aussie bounded 1.4% to 94.42 yen AUDJPY= after the BOJ recommitted to keeping yields near zero despite fierce market pressure to start tightening like other central banks.
That combined with a run of soft U.S. data to help the Aussie hold at $0.7025 AUD=D3 , well above a one-month low of $0.6850 hit early in the week. Resistance now lies around $0.7069.
The kiwi dollar was also enjoying a reprieve at $0.6344 NZD=D3 , after bouncing from a two-year trough of $0.6197 earlier in the week. It faces resistance at $0.6396.
Speculation had been high the BOJ might back away from its easing stance following a shock rate hike from the Swiss National Bank, its first in 15 years.
The sudden SNB move encouraged wagers 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. RBAWATCH
That would take rates to 3.75%, from the current 0.85%, easily the most aggressive tightening of modern times.
Just the risk of such an outcome hammered Australia's bond market, sending three-year yields AU3YT=RR up an eye-watering 45 basis points for the week to their highest since 2012 at 3.70%.
Yields on 10-year bonds AU10YT=RR were up 44 basis points for the week at 4.09%, the steepest rise in two decades. It also blew out the spread over Treasuries to its widest since early 2014 at 90 basis points.
"The spread is now threatening the 100bp level, having been in the mid-50s only days ago," said Damien McColough, head of rates strategy at Westpac. "That is unusually irregular price action but reflects the uncertainty of the global and domestic backdrop."
"Volatile conditions are likely to persist, and that is not an environment conducive to Australian bond outperformance."
In New Zealand, two-year swap rates NZDSM3NB2Y= were up a staggering 51 basis points for the week at 4.50%, levels not seen since 2010.
Markets are wagering the Reserve Bank of New Zealand will more than double rates to 4.25% by year end. RBNZWATCH .
"Given the inflation risks, our new forecasts have the RBNZ hiking in 50bps clips at the July, Aug and Oct meetings with 25bps hikes in Nov'22 and Feb'23," said Prashant Newnaha, senior rates strategist at TD Securities."
