The Australian dollar has hit a multi-month high as market speculation on aggressive US rate cuts reached fever pitch following dovish comments from Federal Reserve policy makers.
The Aussie was up at 70.73 US cents on Friday, a level not seen since late April.
It jumped 0.9 per cent overnight.
All the gains came after New York Fed President John Williams said “it pays to act quickly to lower rates at the first sign of economic distress,” seeming to cement the prospect of a rate cut at the Fed’s July 30 to 31 meeting.
A New York Fed representative later said the speech was academic in nature and “not about potential policy actions”, which hosed down the market a little.
Yet futures were still implying a 44 per cent chance the Fed would cut by a drastic 50 basis points this month, up from almost zero a couple of weeks ago.
That left Treasury yields down sharply for the week, while European yields fell further on reports the European Central Bank might make its inflation target more flexible.
Indeed, South Korea, South Africa and Indonesia all eased policy on Thursday and analysts at JP Morgan expect another 12 central banks to cut rates in the next couple of months.
“Despite upside surprises in incoming data, the Fed is on track to cut 25 basis points at the end of this month and then again in September,” they said in a note.
“The ECB and the BoJ are on deck for September.”
The futures market implies around an 84 per cent chance the RBA will trim rates to 0.75 per cent in November, by which time the Fed may have gone twice itself.
That outlook has helped put a floor under the Aussie and kiwi and, ironically, adds to pressure on the RBA to ease merely to stop the currency from rising further.
Bond markets clearly anticipate more moves, with yields on Australian three-year paper down 7.0 basis points for the week so far at 0.933 per cent.
The 10-year bond futures contract was up at 98.6600, having climbed 10 ticks for the week.