SYDNEY/WELLINGTON: The Australian and New Zealand dollars were sharply lower in early trade on Friday as panic gripped world markets, sparking a huge jump in safer assets like bonds and a rush to sell anything that could still generate a profit.
Aussie dollar slides 2.7pc to $1.0455, it’s lowest since June 28, and has lost about 3 cents in the past 48 hours. The Aussie has tumbled from a post-float high of $1.1081 struck last week, as growth sensitive currencies have tanked.
The Aussie has repeatedly taken out support levels, and is currently up against the next level of support, ahead of a strong floor at $1.0455. The next topside target is $1.0679.
The New Zealand dollar sank 3.4pc to $0.8355, to be down around 4 cents so far this week. The kiwi likewise hovering at support levels and it has a significant support level at $0.8302. Resistance is at $0.8528.
The antipodean pair have tracked steadily downward as sovereign debt and global growth fears have hammered growth sensitive assets.
Stock markets across the globe tumbled, with the MSCI world equity index down 3.7 percent for the day to hit a 2011 low, while bonds surged. Wall Street fell more than 4 percent.
Traders said investors were having to cover losses by selling those assets they still had profits on. That included closing long positions in Aussie and Kiwi which had performed very well in recent weeks.
Australian bill and interbank futures flew higher as investors upped bets the Reserve Bank of Australia (RBA) would soon have to reverse course and cut interest rates.
The market has fully priced in a cut of 25 basis points in the 4.75 pct cash rate next month, and a total 65 basis points of cuts by Christmas.
The RBA releases its quarterly statement on monetary policy at 0130 GMT and is likely to trim its growth forecasts for this year while nudging up inflation forecasts.
The central bank has been doggedly upbeat on the economic outlook given sky high terms of trade and a massive pipeline of mining investment, but it is being rapidly overtaken by events.
If markets keep falling it could generate another global financial crisis and prompt emergency cuts, as the RBA did in the wake of the Lehman crisis.
The stampede into US Treasuries tended to support the US dollar as did talk of repatriation by US investors, though it did not fare so well on the yen and Swiss franc.
The Aussie shed 3.3 pct on the Swiss currency to around 0.8000, the lowest since April 2009, and fell back to 82.80 yen from a brief high atop 85.00.
Fears grew that Italy would be the next euro zone economy to be caught up in the debt crisis, sending its stock market lower and taking losses to more than 30 percent since February.
The European Central Bank left its benchmark rate steady but resumed buying government bonds from the market and offered a new round of funding for commercial banks in response to the worsening debt crisis.
The Aussie steadies against its kiwi cousin, with the cross rate at NZ$1.2530, after touching a one-year low at NZ$1.2368 on Thursday. The cross has fallen from about NZ$1.30 in early July.
Bond prices jumped as investors fled stocks, with yields on the benchmark 10-year note falling to 2.42 percent, its lowest in almost 10 months.
NZ government bond prices jumped, with yields falling more than 24 basis points across most of the curve.
Australian bond futures soared, with the 3-yr contract up a huge 0.36 points to 96.22, and the 10-year 0.26 points to 95.530.
Copyright Reuters, 2011
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