The Australian and New Zealand dollars were on the ropes on Thursday as worries about a recession in Europe and a slowdown in China engulfed risky assets and overwhelmed the promise of rising interest rates at home.
Adding to the pressure was a decision by the Bank of Japan (BOJ) to reaffirm its super-easy policy, which sparked a rush from the yen to the U.S. dollar and lifted the latter across the board.
That saw a punch-drunk Aussie down at $0.7104 AUD=D3 , having now lost 1.9% for the week and 5.1% on the month. A breach of support around $0.7086/95 could well trigger another sell off toward its January lows at $0.6968.
The kiwi dollar had already broken its January trough to reach $0.6505 NZD=D3 , bringing its losses for the month to 6.1%. That left it at levels not seen since late 2020 and threatened support around $0.6490 and $0.6440.
Both fared better on the euro and yen, which have plenty of troubles of their own, leaving the U.S. dollar as the main beneficiary of safe haven flows.
Even the imminent prospect of the first Australian rate rise in a decade could not help sentiment.
Red-hot inflation figures have convinced investors the Reserve Bank of Australia (RBA) can no longer keep rates at emergency lows of 0.1% and futures
0#YIB: are now fully priced for a hike to 0.25% next week.Markets also see a move to 0.5% in June and rates around 2.5% by year end, implying there will be a couple of hikes of 50 basis points at some stage. RBAWATCH
That would be a radical departure for the RBA given the last time it hiked by more than 25 basis points was in early 2000.
Westpac on Thursday joined NAB and ANZ in tipping a first hike at the RBA's May 3 Board meeting, leaving CBA still arguing for a move in June though with fading conviction.
"On seeing that (inflation) number our thinking is now that it precludes the "luxury" of waiting for the additional information on the labour market and the RBA board will have to act on May 3," said Westpac chief economist Bill Evans.
He expects another 25 basis points in June and sees rates at 1.5% by year end, well short of market pricing.
Three-year bond yields AU3YT=RR have already hit their highest since late 2014 at 2.747%, after more than doubling since mid-March.
