The Australian and New Zealand dollars held huge gains on the euro on Friday after the European Central Bank engineered a steep fall in short-term bond yields that made the single currency the perfect funding choice for carry trades. The ECB on Thursday announced it would reduce the amount of assets it buys every month but also keep buying for longer and expanded what it could purchase to shorter-dated paper.
The euro had jumped as high as A$1.4510 when the first headlines suggested the ECB was tapering, only to sink as deep as A$1.4194 when it became clear it was doing nothing of the sort. The single currency was last at A$1.4232. The move was just as violent against the kiwi, falling from a top of NZ$1.5093 to stand at NZ$1.4792 and only a whisker away from a 19-month low. With the euro dominating, the Aussie was left sidelined on its US counterpart at $0.7453, roughly in the middle of the week's $0.7414 to $0.7509 range.
The kiwi fared better holding at $0.7171 and well above the week's $0.7070 trough thanks to a run of firm data and upbeat comments from the country's central bank. Australian government three-year bond futures dipped 4 ticks to 98.070 while the 10-year contract lost 7.5 ticks to 97.2275. The spread between the two gapped to 85 basis points, the widest since September last year. Likewise, short-term New Zealand yields rose 2 basis points while the long-end jumped 7.5 basis points.