The Australian and New Zealand dollars were shouldered aside by their U.S. cousin on Wednesday as the prospect of more rate hikes from the Federal Reserve blew out the gap between their short-term yields to its widest in 18 years.
The Aussie dollar AUD=D3 was back at $0.7381, having recoiled from $0.7438 overnight. It now has support at $0.7360, ahead of the recent lows around $0.7311.
The U.S. currency got a broad lift after Federal Reserve Chairman Jerome Powell reiterated the outlook for more gradual rate hikes, while downplaying the impact of global trade risks on the economy.
That was taken as relatively hawkish by investors, who pushed two-year Treasury yields up to decade-highs at 2.62 percent US2YT=RR .
It underlined the stark contrast to Australia, where the central bank had just emphasised the need to keep rates steady as a stabilising factor for the economy.
Interbank rate futures
0#YIB: imply no chance of an Australian hike at all this year, rising to around a 70 percent probability of an increase by December 2019.As a result, U.S. two-year debt now pays 58 basis points more than Australian paper, the largest gap since mid-2000. At the start of this year, they offered roughly the same yield.
The New Zealand dollar NZD=D3 had also lapsed, to $0.6777, having stretched as far as $0.6839 overnight when speculators were squeezed by local inflation figures.
While the official measure of consumer prices was benign, the Reserve Bank of New Zealand's own version of core inflation ticked up to the fastest pace since 2011 at 1.7 percent.
That was enough of a surprise to nudge traders into pricing in a slightly greater chance of a rate hike next year.
"We doubt the inflation increase will trigger any near-term change in thinking at the RBNZ," said Sean Kean of Triple T Consulting.
"But it should help give the Bank confidence that inflation will start to build going forward, and that the combination of domestic price and labour market pressures will push the CPI towards the middle of the target band in 2019."
Not helping matters was an auction for dairy which showed that prices for New Zealand's main goods export had sunk for the fourth time in a row - though prices for whole milk powder posted a surprise rise.
New Zealand government bonds
0#NZTSY= gained, sending yields 2 basis points lower along the curve.Australian government bond futures were little changed, with the three-year bond contract YTTc1 flat at 97.9000. The 10-year contract YTCc1 added 1 tick to 97.3500.
