Australia, NZ dollars get reprieve as bears turn on USD; bonds surge

By Wayne Cole

SYDNEY, April 4 (Reuters) - The Australian and New Zealand dollars looked to end a rough week on a steadier note on Friday after fears of a tariff-driven recession hammered their U.S. counterpart, gifting a huge windfall to bonds as investors bet on more rate cuts.

Longer-dated bonds boasted their best day in two years as markets moved to price in 100 basis points of cuts from the Reserve Bank of Australia this year, compared to 75 basis points on Monday. 0#AUDIRPR

"On the information we have to hand, the market reaction and past RBA responses to global shocks, more aggressive RBA easing now seems more likely than not," said Adam Boyton, head of Australian economics at ANZ.

"Given the likely impacts on global growth and those already evident in market sentiment, we now expect the RBA to ease in May, July and August," he added. "Indeed, we would not rule out a 50 bp cut in May, if sentiment sours and the global growth outlook deteriorates sufficiently."

Swap markets now imply around a 90% chance the RBA will cut by a quarter point when it meets on May 18, up from 70% just a couple of days ago, and despite policy makers sounding cautious earlier in the week about easing.

Yet, investors have also rushed to price in more U.S. easing, while their confidence in Wall Street is strained.

The resulting retreat in the U.S. dollar helped lift the Aussie to $0.6324 AUD=D3 and away from a one-month trough of $0.6219 hit at the start of the week. It even tested resistance around $0.6390 overnight before running out of gas.

The kiwi dollar stood at $0.5783 NZD=D3, having also rallied from a $0.5646 low early in the week. It briefly touched a four-month peak of $0.5852 overnight.

However, the gains were really only on the U.S. dollar as the souring of risk sentiment globally dragged the Antipodeans down on the euro, yen and Swiss franc.

In the bond market, 10-year yields AU10YT=RR were down at 4.225%, having fallen a whopping 25 basis points for the week so far. Wagers on rate cuts saw three-year bond futures YTTc1 hit a six-month top having surged 21 ticks on the week to 96.550.

"Recent developments in global trade policy have a clear dovish read-through for both the RBA and the RBNZ," said Andrew Boak, an economist at Goldman Sachs.

"We expect downward revisions to both growth and inflation will catalyse a materially dovish pivot at the RBA over the coming weeks."