The Australian and New Zealand dollars struggled on Wednesday after markets swung back to expecting more interest rate hikes from the U.S. and Europe with the ebbing of banking fears.
The Aussie was hovering at $0.6684 AUD=D3 , after falling 0.7% to as low as $0.6650, despite a broad improvement in risk appetite. It has support at 14-day moving average of $0.6660 and faces resistance at the 21-day moving average of $0.6692.
The kiwi dollar NZD=D3 was changing hands at $0.6189, having also eased 0.8% as far as $0.6168 overnight. Near-term support is around $0.6186.
The two currencies also nursed heavy losses against the euro as short-dated German bond yields DE2YT=RR jumped in their biggest daily movement since 2008.
The euro rose 1.2% overnight to a one-year high of A$1.6194 EURAUD= before settling at A$1.6156 on Wednesday. It also jumped 1.3% overnight against the kiwi to NZ$1.7457 EURNZD= , a five-month high, before stabilising at NZ$1.7437.
Efforts by U.S. Treasury Secretary Janet Yellen to calm nerves seemed to be working, with bank shares rallying overnight. U.S. government officials were also pondering increasing the limit on deposit insurance, though there was no agreement on this as yet.
"It might be early days, but the price action over the past 48 hours is certainly signalling a change in mood by investors," said Rodrigo Catril, senior FX strategist at National Australian Bank.
"The decline in financial stability concerns means that central banks have more room to refocus on their quest to bring inflation to heel and as a result, the market has increased expectation for further tightening over coming months."
U.S Treasury yields jumped, with futures nudging up bets for the Federal Reserve to deliver a 25 basis point hike at its policy meeting which concludes on Wednesday. They also trimmed the size of rate cuts priced in by year-end to just 20 basis points, compared with 70 bps just days ago. FEDWATCH
Australian bond yields were marginally lower. Three-year government bond yields AU3YT=RR slipped 4 basis points to 2.901%, while 10-year yields AU10YT=RR eased 2 basis points to 3.322%.
