SYDNEY/WELLINGTON: The Australian and New Zealand dollars were subdued on Friday, but on track to post their best weekly gain in several months on the greenback as global growth worries have led investors to push out the likely timing of a US interest rate hike.
The Aussie edged up 0.2 percent to $0.8777, and was up more than 1 percent on the week - its biggest gain in six months. Since falling to a four-year trough of $0.8642 on Oct. 3, the Aussie has largely been in consolidation mode.
Normally, growth worries and a resultant selloff in commodity prices would spell trouble for both Antipodean currencies, but this week's breath-taking slide in Treasury yields have overwhelmed US dollar bulls.
The benchmark US 10-year yield has fallen 15 basis points this week, a magnitude not seen in 13 months.
Comments from James Bullard, the head of the St. Louis Federal Reserve Bank on Thursday, appeared to justify the market's dovish take. Bullard said the US central bank may want to keep up its bond buying stimulus for now given a drop in inflation expectations.
Against the euro and yen, the Aussie is pretty flat on the week.
This week's huge spike in market volatility has brought back memories of the turbulent times seen during the global financial crisis, and is partly spurred by growing gloom surrounding the euro zone and worries about slower growth in China.
That has driven investors back to the safety of government bonds. Australia's 10-year bond yield slid to 14-month lows of 3.173 percent as a result, although the premium it trades over US bonds blew out to its widest in four months at one stage.
That wider premium gave the Australian dollar an edge over the greenback.
The New Zealand dollar has also been jerked around by shifts in risk sentiment in the past week. It was flat on Friday at $0.7946, but up 1.7 percent on the week - its best performance in four months.
It is slightly higher against the euro and yen on the week.
Analysts, however, suspect the higher-yielding currency will resume its broad weakening trend as investors become more confident that US interest rates will rise at some point next year.
"We're expecting a more steady decline of the kiwi as global growth picks up again and ticks along at a 'not too hot, not too cold pace', which would negate the carry advantage that New Zealand has," ANZ currency strategist Sam Tuck said.
ANZ expects the kiwi to end the year trading around $0.8000, before easing to $0.7500 by the end of 2015.
After this week's big rally, New Zealand government bonds took a bit of a breather, pushing yields 2.5 basis points higher across the curve.
Australian government bond futures also stepped back from this week's peaks, with the three-year contract trading at 97.430, down from a two-year high of 97.580.
The 10-year contract shed 5.5 ticks to 96.730, off a 17-month high of 96.905 set on Thursday.
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