The Australian and New Zealand dollars lost ground on Friday as a slide in global stock markets undermined risk assets, but gave bonds a reprieve from recent selling.
The Aussie lapsed to $0.7184 AUD=D3 , having been as high as $0.7275 on Thursday, and was down 0.5% on the week. Support lies at $0.7170 while resistance comes in at $0.7277 and $0.7314.
Yields on Australian 10-year bonds AU10YT=RR also eased to 1.898%, from a three-month top of 2.01% reached on Wednesday.
The kiwi dollar lagged further behind at $0.6724 NZD=D3 , in part because the Aussie was up 0.9% for the week on the kiwi at NZ$1.0687 AUDNZD= and near a six-month top.
Stock markets seem to have become increasingly spooked that the U.S. Federal Reserve will adopt an even more hawkish outlook at its policy meeting next week given the stubbornness of inflation.
Speculation is also mounting that the Reserve Bank of Australia (RBA) will have to back away from its very dovish stance on rates given that unemployment had dived as low as 4.2% a whole year earlier than forecast.
Consumer price data due next week could well force a hawkish turn if it shows core inflation rising as far as some fear. Both National Australia Bank and Commonwealth Bank of Australia predict trimmed mean inflation to hit 2.5% in the December quarter, the highest since 2009 and dead in the middle of the RBA's 2%-3% target band.
The RBA Board meets on Feb. 1 and analysts assume it will at least end its quantitative easing (QE) programme where it buys A$4 billion of government bond every week.
"The stage appears set for a hard exit of QE in February," said Nomura analyst Andrew Ticehurst.
"We continue to pencil in a first 15 basis point rate hike from the RBA in November, with the risk around this still skewed towards an earlier move, as in August."
Markets are already wagering on a hike to 0.25% as soon as May or June, and a further three rises to 1.0% by year end. RBAWATCH
"We think this will ultimately prove too aggressive, but perhaps understandable in the shorter term, given the hawkish Fed, consistent upside global inflation surprises, and aggressive rate hike pricing in other markets," added Ticehurst.
