The Australian and New Zealand dollars were on the defensive on Monday as the spread of coronavirus beyond China stoked worries about its impact on global growth and drove bond yields lower as investors wagered on more policy easing from central banks.
The Aussie was stuck at $0.6608 <AUD=D3>, after carving a fresh 11-year trough at $0.6585 in early trade. The currency shed 1.3% last week alone and looks set to fall further with little in the way of technical support at these depths.
The kiwi dollar slipped to $0.6322 <NZD=D3>, having touched a four-month low of $0.6303 on Friday. It also lost 1.3% last week and seems headed back toward last year's bottom at $0.6204.
Unease about the spread of coronavirus grew on Sunday with sharp rises in infections in South Korea, Italy and Iran. The government in Seoul put the country on high alert after the number of infections surged to over 600.
An outbreak in northern Italy forced the near-closure of several towns, while Austria halted train services with Italy that go via the Brenner Pass.
"Concerns over the spread outside China have led to a large risk-off move," said Ross Weston, a senior portfolio manager at Kiwibank. "If it continues then further disruption to supply chains will become evident thus slowing global growth further and in turn bringing central banks back into play."
"Every week that passes without end to the outbreak, increases the likelihood that both the Government and RBNZ will have to respond."
Both the Reserve Bank of New Zealand (RBNZ) and the Reserve Bank of Australia (RBA) have signalled rates are on hold for now, but that has not stopped investors betting aggressively on eventual cuts.
Markets have fully priced in an RBNZ easing to 0.75% by September <RBNZWATCH>, while futures imply an RBA move to 0.5% by July is a done deal <0#YIB:>.
Bonds have rallied hard in response, with the three-year bond future <YTTc1> up 10 ticks in three sessions to reach 99.385 and again approaching the all-time highs at 99.460.
The 10-year contract <YTCc1> firmed another 3 ticks on Monday to 99.0950, implying a yield of just 0.91%.
Domestic data were overshadowed with New Zealand retail sales rising 0.7% by volume in the December quarter, much as analysts expected.
The main Australian release for the week will be business investment for the fourth quarter on Thursday.
Analysts are forecasting a modest rise of 0.4%, which would imply investment made only a marginal contribution to economic growth in the quarter.
(Editing by Shri Navaratnam)
