The Australian dollar slipped and bonds rallied on Thursday after the country's central bank stoked speculation of a near-term cut in interest rates while hinting it may buy more longer-dated government debt.
The Aussie eased 0.3% to $0.7138 <AUD=D3>, taking it further away from last week's top of $0.7243 and nearer support around $0.7125 and $0.7094.
The New Zealand dollar was steadier at $0.6654 <NZD=D3>, where it has been for much of this week.
The big move was in Aussie government bonds where 10-year futures <YTCc1> jumped 8 ticks to 99.2400, their highest since early April and a clear break of major resistance at 99.1800.
The rally came after Reserve Bank of Australia (RBA) Governor Philip Lowe noted that 10-year yields were among the highest in the developed world and it was worth considering whether buying the debt in the market would bring those down.
While the central bank has been a regular purchaser of short-term debt, it has shunned the long end.
"It is also likely the RBA will announce their intention to purchase more bonds in the 5‑10 year part of the curve," said CBA economist Kristina Clifton.
"Lower bond yields will have the first round effect of reducing interest costs for the government as they continue to provide a massive amount of fiscal support to the economy."
Lowe also said further policy easing would have more impact now that coronavirus restrictions were being eased across much of the country.
"We see the RBA lowering the cash rate target, term funding facility rate and three year bond yield target to 0.10% in November," said Clifton at CBA. Rates are currently at 0.25%.
The market has already largely priced in such a shift, with three-year yields at 0.14% <AU3YT=RR> and November bank bill futures <0#YIB:> at 99.920, implying a rate of just 0.08%.
The need for further stimulus was underlined by data showing 29,500 jobs were lost in October while the unemployment rate rose a tick to 6.9%.
Lowe earlier emphasised that creating jobs was the number one priority of both monetary and fiscal policy, and the central bank stood ready to do all it could to help.
Also weighing on the Aussie were more reports that Chinese importers were deferring purchases of Australian coal amid trade tensions between the two countries.
(Reporting by Wayne Cole; Editing by Sam Holmes)
