The Australian and New Zealand dollars extended gains on the euro on Thursday, as the threat of deflation reinforced expectations of bolder stimulus steps by the European Central Bank (ECB). The euro fell to a one-month low of A$1.4596 and was testing support around A$1.4590. It has lost 1.5 percent so far this week and seven cents since a high in December.
Against the kiwi, the euro sank to a 20-month low around NZ$1.5190. A break of NZ$1.5072 would take it to the weakest since August 2012. Much of the euro's broad demise came after consumer prices in the euro zone showed their first annual decline since 2009, cementing expectations the ECB will launch a bond buying program at its policy meeting on January 22.
The pound also came under pressure after disappointing data in Britain. Sterling plumbed a four-month low against the kiwi and it fell to its weakest since early December against the Aussie. Euro and pound selling supported the Antipodean currencies against their US counterpart. The Australian dollar edged up to $0.8092, having touched a six-year trough of $0.8033 overnight.
The Aussie, which has tumbled 8.5 percent last year, remained vulnerable as the Federal Reserve is still anticipated to lift interest rates later this year, although the timing remains unclear. The New Zealand dollar outperformed most major currencies, nudging it to a record high against the Aussie, which fell to around NZ$1.0375 in early local trade. Gains against the euro and other currencies lifted the kiwi as high as $0.7795 in early local trade, although market participants expect a significant push above $0.7800 would be difficult given broad demand for the greenback.
A ramp-up in speculation of possible interest rate cuts in Australia has battered the Aussie against the kiwi. While this has pushed it towards parity, bids around current levels may limit further losses for now. "Every cent gain from here gets harder and requires new information on either side of the Tasman to achieve," ANZ analysts said in a note.
New Zealand government bonds eased, pushing the yield on 10-year bonds 1.5 basis points higher to 3.57 percent. Australian government bond futures ran into profit taking, with the three-year bond contract down 6 ticks at 97.870. The 10-year contract eased 5.5 ticks to 97.3100, from a record peak of 97.4650.