SYDNEY, Feb 17 (Reuters) – The Australian and New Zealand dollars stepped back from major resistance barriers on Wednesday as a jump in Treasury yields gave the U.S. dollar a reprieve, while domestic bonds took a beating amid fears of faster global inflation.
The Aussie eased to $0.7753 and away from a four-week top of $0.7805. The failure to clear the January peak of $0.7819 could now see it test support around $0.7713.
The kiwi dollar slipped to $0.7198 and back from a six-week peak of $0.7269. It also failed to break the January high of $0.7314, opening up a test of $0.7178 and $0.7136.
The U.S. dollar was benefiting from rising yields; it was not alone. Australian 10-year yields climbed even more to hit 1.421%, the highest since a brief spike during the market mayhem of last March.
Yields were up 20 basis points in just two days and widened the spread over Treasuries to 10 basis points, from 2 basis points late last week.
Three-year yields remained pinned at 0.129% thanks to the Reserve Bank of Australia’s (RBA) continued commitment to super-easy policy.
RBA Assistant Governor Christopher Kent on Wednesday estimated the Aussie would have been 5% higher without those policies.
The spread between three- and 10-year yields widened to 129 basis points, the steepest curve since early 2014 and a potential boon to bank earnings.
Across in New Zealand, 10-year yields shot to 1.558% having risen 18 basis points on Tuesday alone.
The market has been reconsidering how long the Reserve Bank of New Zealand (RBNZ) will maintain its stimulus package given the economy has rebounded and house prices are booming.
The central bank holds its first policy meeting of the year next week and investors assume it will keep rates at 0.25% but acknowledge the better economic background.
“The RBNZ might talk less about looming downside risks, and will probably not actively promote the possibility of further rate cuts, as it did over most of last year,” said Dominick Stephens, Westpac’s chief economist for NZ.
He expects the RBNZ will not start to hike rates until 2024, but could tinker with its bond buying programme next week.
“It seems a lot like the RBNZ has decided to slow the pace of bond purchases and allow long-term interest rates to rise, even though no such policy decision has been announced,” said Stephens.
(Reporting by Wayne Cole Editing by Shri Navaratnam)