The Australian and New Zealand dollars inched higher on Wednesday as global markets priced in the risk of a more drastic tightening by central banks, sending local bond yields to three-year peaks.
The Aussie stood at $0.7154 , having edged up 0.3% overnight and further away from support around $0.7050. A break above resistance at $0.7168 could see the rally extend to $0.7275.
The kiwi dollar was a shade firmer at $0.6646 , giving it a bit of a buffer from support around $0.6590. It still needs to clear last week's top of $0.6683 to improve the technical background.
Both currencies were aided by a steep rise in local bond yields following super-strong U.S. jobs data and an ongoing hawkish shift by major central banks including the European Central Bank.
"Services inflation appears to be accelerating, so having hung their hats on the transitory hook for all of 2021, some central banks now appear behind the curve," warned ANZ analysts in a note.
"Rate rises this cycle could be quicker than the 2015–18 tightening cycle, and the fact that the ECB will be joining in at some point is a double whammy for long fixed-income positions."
New Zealand 10-year yields jumped 14 basis points on Tuesday alone to hit 2.74%, levels last visited in late 2018.
The closely-watched three-year swap rate climbed nine basis points to 2.51% as investors wagered the Reserve Bank of New Zealand (RBNZ) might hike by 50 basis points at its meeting on Feb. 23.
Cash rates are seen up at 2.50% by year end, heights last reached in early 2016.
Markets have likewise moved to price in more moves by the Reserve Bank of Australia (RBA), after the central bank conceded a rate rise could come late next year if the economy continued to surprise on the upside.
A first move to 0.25% is implied by June, while in the past week futures have added in a fifth hike for this year to reach 1.25%. Further increases to 2.5% are priced in by July 2023.
Reflecting that mood, the Australian bond market has taken a beating this week. Yields on 10-years have surged 25 basis points in four sessions to hit 2.10%, and briefly reached their highest since March 2019 at 2.157%.
Reporting by Wayne Cole; editing by Richard Pullin