The Australian and New Zealand dollars tumbled to multi-year lows on Thursday as panic selling swept through global assets, leading Australia's central bank to launch a rescue attempt for a sinking bond market.
The Reserve Bank of Australia (RBA) announced plans to buy enough government debt to keep three-year yields around 0.25%, vowing to do whatever it takes to stabilise prices.
The pledge saw three-year bonds reverse sharp early losses and drive yields down 15 basis points to 0.356%, the sharpest fall since mid-2016.
It also helped calm a frenzy of fund selling in 10-year bond futures, which at one point suffered their largest daily drop since 1992. As a result, the contract ended at 98.5150 having briefly touched a trough of 97.4850.
RBA Governor Philip Lowe helped by emphasising the bank would buy bonds across the curve and not just at the short-end, with no limit to the amount it might acquire. The first operation is due to take place on Friday.
"We have an open-ended commitment to balance sheet expansion that will be determined by the market," said Kerry Craig, global market strategist at J.P. Morgan Asset Management.
"There may be some capital to be gained in government bonds if yields can be brought back down, yields are going to stay low and remain low for some time."
The commitment to stabilise markets also helped put a floor under the Aussie dollar, which at one point had collapsed two cents to its lowest since late 2002 at $0.5508.
While the Aussie did manage to steady at $0.5778, it was still down a wrenching 6.7% for the week so far in the biggest drop since 2008.
The kiwi dollar also had a wild ride, tumbling as far as $0.5469 at one point before paring losses to $0.5698. That still left it down a sharp 6.1% on the week.
Both currencies shave been hammered as distressed funds sold any liquid asset to cover losses in stocks and redemptions from investors, a tide fuelled in part by automated selling from algorithmic funds.
"In a negative risk environment, the path of least resistance for the AUD remains lower, in the short term at least," said Andrew Ticehurst, an economist at Nomura. "Price action points to portfolio liquidation across both AUD equities and long-term bonds." Such was the speed of the fall that traders suspected the RBA might have to intervene to restore a two-way market, much as it did during the global financial crisis.
Lowe said the bank stood ready to act if needed, but had not intervened as yet.
Local data was utterly overshadowed, which was a shame for Aussie bulls as jobs figures handily beat forecasts with a jump of 26,700 in February.
New Zealand reported the economy grew 0.5% in the December quarter and 1.8% for the year, but again analysts assume it will soon be in recession as the coronavirus spreads.
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