The Australian dollar was precariously poised near a decade trough, as short-term bond yields hit all-time lows on wagers interest rates would have to be cut at least once to offset the economic fallout from the coronavirus.
At 1414 AEDT on Monday, the Aussie was hanging on at 66.89 US cents, having dived as deep as 66.83.
It slid two per cent last week to threaten its October trough at 66.70, and a break there would take it to territory last trod in early 2009.
The New Zealand dollar also struggled at 64.59 US cents, having shed 2.1 per cent last week to a two-month trough.
It now has support in the 64.00/20 zone.
Both currencies have suffered from fears the viral outbreak would curb Chinese tourism and the demand for key commodity exports, including iron ore and coal.
As the crisis spread investors have significantly ramped up wagers that central banks globally would have to ease policy to safeguard economic growth.
China’s central bank on Monday duly cut a key repo rate and flooded the financial system with cash.
Futures moved aggressively to price in more easing from the Reserve Bank of Australia (RBA), which holds its first policy meeting of the year on Tuesday.
Currently, the market implies only a 20 per cent chance of a quarter-point cut in the 0.75 per cent cash rate this week, but that probability jumps to 100 per cent by May.
Investors have also pushed to price in a 66 per cent chance of a further easing to 0.25 per cent by the end of the year.
“The pricing for rate cuts has been building since the impacts of the bushfires and coronavirus have escalated,” said Richard Grace, chief currency strategist at CBA.
“While we are not calling for an RBA cut until April, the risk of a cut this week cannot be ruled out. The RBA is likely to refer to the virus in their accompanying monetary policy statement.”
Cash yields on three-year Australian notes dived to a record low at 0.553 per cent, breaching the previous trough of 0.567 per cent hit in October.
Three-year bond futures climbed five ticks to 99.435, near its all-time high, while the 10-year contract rose four ticks to 99.0750, implying a yield of 0.925 per cent.