Aussie kiwi on hold as bond yields hit historic lows

The Australian and New Zealand dollars held steady on Monday as markets waited on the next developments in the Sino-US trade dispute, while bond yields reached record lows as investors wagered heavily on rate cuts at home.
The Aussie dollar was parked at $0.6931 and above its recent five-month low of $0.6865 - a level that has turned into strong chart support after surviving several tests. Resistance is now lined up at $0.6940 and $0.6960.
The kiwi dollar had inched to $0.6553 and away from last week's seven-month trough of $0.6482.
Both currencies have been pressured, and bonds buoyed, by mounting expectations of falling interest rates.
Just last week, Reserve Bank of Australia (RBA) Governor Philip Lowe said a rate cut would be considered at the next policy meeting on June 4, leading all four of the major banks to tip a quarter-point easing in the 1.5% cash rate.
Futures imply an 84% probability of a cut next week with a move to 1% fully priced by October. The market has gone even further and priced in a real chance of reaching 0.75% by the middle of next year.
"Westpac is now forecasting three cuts in 2019 in June; August and November to push the cash rate from 1.5% to 0.75% and to hold at that level through 2020," said Westpac chief economist Bill Evans.
"While back in February we expected the low in the AUD to be $0.68, we have now shaved that forecast back to $0.66 by end 2019," he added. "This forecast is also predicated on our constructive view on commodity prices and a steady US federal funds rate over 2019."
The bond market is also moving in that direction, with yields on three-year paper hitting a fresh record low at 1.09%, a world away from where they started this year at 1.82%. The 10-year bond future eased back 2 ticks on Monday to 98.4500, but that was from an all-time high.
The Reserve Bank of New Zealand has already cut its rates to 1.5% and markets are wagering on another easing to 1.25% by year-end.
Yields on two-year bonds fell to a record low on Monday at 1.325%, having begun the year at 1.72%.
Some support for the Aussie has come from surging prices for iron ore, Australia's biggest export earner. Chinese futures for the ore climbed almost 5% last week to top $100 a tonne, a huge windfall to miners given the Aussie is also so weak against the U.S currency.