The Australian and New Zealand dollars were hit by a fresh bout of market jitters on Thursday as grim forecasts for the length and depth of the coronavirus pandemic tested investor appetite for risk.
The Aussie was hanging on at $0.6068 AUD=D3 , having fallen almost 1% overnight to as low as $0.6039. That left a $0.6215 top touched earlier in the week as major resistance.
The kiwi dollar stood at $0.5915 NZD=D3 , after slipping 0.7% overnight to as low as $0.5880 and some way from the recent top at $0.6067.
The Antipodean economies have been hit hard by international travel curbs and strict social distancing, with Australia's government warning restrictions could last for six months.
Gareth Aird, a senior economist at CBA, fears Australia's economic output (GDP) will shrink by a record 7.5% in the second quarter, from the previous quarter, and by 3.4% for all of 2020.
As a result, the budget deficit will blow out to around A$72 billion ($43.80 billion) for the year to June, or 3.7% of GDP, and to a staggering A$155 billion in 2020-21.
To pay for all of this, government debt would balloon by A$270 billion by June next year and take total bonds outstanding to A$790 billion, or 40% of GDP.
With a tidal wave of debt coming, analysts said it was just as well the Reserve Bank of Australia (RBA) was operating in the secondary market to buy bonds.
It offered to pick up another A$2 billion of 2024 to 2027 paper on Thursday, choosing to buy even though the market had already taken three-year yields to record lows of 0.219%.
Traders said the market was testing how flexible the central bank intended to be about its 0.25% target for three-year yields AU3YT=RR . The bank has said the target was not absolute and yields could trade "around" that level.
"We doubted the RBA would declare 'mission accomplished' and not come to the market," said David Plank, head of Australian economics at ANZ.
"We think the decision to continue purchasing is very important,' he added "It provides ongoing support for the market and signals that the RBA wants to see further flattening in this part of the curve."
Three-year bond futures YTTc1 hit an all-time high of 99.780, and were last at 99.745. Futures for the 10-year bond AU10YT=RR were off 6 ticks at 99.280.
New Zealand almost doubled its debt issuance target to NZ$25 billion for 2019-20, a demanding goal given it had only raised NZ$8 billion so far this fiscal year.
Again, the Reserve Bank of New Zealand has stepped up its purchases with NZ$1.35 billion to be bought this week.
The central bank on Thursday also added another layer to its massive stimulus campaign, announcing a new term lending facility that will help fund banks at low interest rates for up to three years.
($1 = 1.6439 Australian dollars)
