Australia, NZ dollars hit multi-week lows on bond rout

[SYDNEY] The Australian dollar was near 1-1/2 month lows on Wednesday as traders unwound positions in high-yielding, risky assets and rejigged portfolios on concerns global central banks were reaching the limits of policy stimulus.

The Australian dollar held at US$0.7467 after falling the most in 2-1/2 months on Tuesday and breaching major chart support at US$0.7490.

Investors are anxious ahead of the Bank of Japan's policy meeting next week after reports it was studying options to steepen the bond yield curve or to take rates deeper into negative territory.

Longer-term Japanese bond yields have been rising sharply as a result, pushing up yields across the globe and forcing investors out of carry trades in currencies such as the Aussie.

The shift has seen investors close out long Aussie positions particularly against the euro and the yen.

Yields on Australian 10-year paper have spiked 25 basis points in just three sessions to hit their highest in three months.

"The moves in developed market fixed-income, which are largely behind the volatility, have stemmed from Japan and the potential changes in monetary policy," said Chris Weston, chief markets strategist at IG Markets.

"Secondly, some of the biggest systematic funds have had to alter their portfolios. The rest of the market participants have had to simply react."

Global investors, wary of a bond selloff and over-valued equities in the developed world, have increased cash holdings in portfolios and upped emerging market equity positions to their highest in three and a half years.

The New Zealand dollar did not fare any better, extending overnight losses on Wednesday as global risk aversion hit commodity-related currencies.

The kiwi edged down to US$0.7244, trading near two-week lows, after falling 1.3 per cent overnight.

"While we think there is some fundamental support for the NZD, with a strong economy and higher dairy prices, the currency remains vulnerable to a further fall in risk appetite," BNZ Currency Strategist Jason Wong said in a research note.

The kiwi was not helped by data released on Wednesday morning that showed the current account deficit was slightly wider than expected.

New Zealand government bonds fell in line with US Treasuries, sending yields 8.5 basis points higher at the long end of the curve.

Long-dated Treasury yields rose to their highest levels in around three months on Tuesday amid heavy Treasury and corporate debt supply and speculation about the BOJ's intentions.

Australian government bond futures eased too, with the three-year bond contract off 2.5 ticks at 98.365. The 10-year contract was down 6.25 ticks to 97.85.

REUTERS