Australia, NZ dollars get respite as US$ feels the yield pain
By Wayne Cole
SYDNEY, July 3 (Reuters) - The Australian and New Zealand dollars steadied against their U.S. counterpart on Wednesday, as global growth worries rekindled speculation of aggressive easing from the Federal Reserve and drove Treasury yields lower.
The Aussie dollar AUD=D3 stood at $0.6995, having bounced from a $0.6957 low overnight, but remained short of Monday's two-month top of $0.7039.
The kiwi dollar NZD=D3 edged up to $0.6681, from a trough of $0.6657 but again was well off Monday's $0.6737 high.
Investors looked to have been spooked overnight when Bank of England Governor Mark Carney warned that trade tensions could "shipwreck the global economy". This was a notable shift in mood and led markets to narrow the odds on a UK rate cut.
Gilt yields GB10YT=RR dived below the 0.75% cash rate and pulled U.S. yields sharply lower. Futures lifted the probability that the Fed would cut rates by a full 50 basis points this month, rather than just 25 basis points. FEDWATCH
This aggressive outlook, in turn, overshadowed Tuesday's decision by the Reserve Bank of Australia (RBA) to cut its rates by a quarter point to 1%.
While the market has one more easing priced in for the RBA 0#YIB:, it implies almost four cuts ahead from the Fed.
With all eyes on rates, investors paid scant attention to domestic trade data though normally they would have been considered bullish for the Aussie.
The country's trade surplus jumped to a record peak of A$5.7 billion ($3.98 billion) in May as export growth handily outstripped imports.
Iron ore exports alone surged A$1.3 billion in the month as strong demand from China combined with supply constraints to push prices and shipments sharply higher.
"Given that the price of iron ore has continued to rise in June, that record surplus may yet be extended," said Ben Udy, an economist at Capital Economics.
"If prices remain high, mining investment may soon stop falling and could make a positive contribution to GDP growth. That's an upside risk to our forecasts for next year."
In the debt market, Australian bonds joined the global rally with the three-year bond future YTTc1 rising 4 ticks to 99.105. The 10-year contract YTCc1 also firmed 4 ticks to 98.7000.
Yields on New Zealand government bonds 0#NZTSY= fell by as much as 4 basis points at the long end of the curve.
($1 = 1.4310 Australian dollars)
(Editing by Jacqueline Wong)
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