The Australian dollar was firm at $US1.0387 in late trade, adding to overnight gains after Fed chairman Ben Bernanke said he would not hesitate to add more stimulus to the US economy if required.
Although there was no hint of imminent action, the comment was enough to maintain Wednesday's positive momentum following a batch of strong corporate results in the United States.
“Global sentiment has been strong for the past two days, and that’s helped high-beta currencies like the Aussie and kiwi rise,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender.
The dollar edged lower on the yen but still retained most of the gains made since Tuesday. The Aussie eased to 84.22 yen, but a fair way off a low of 82.82.
Australian 10-year bond yields were hovering around 61 years lows at 3.725 per cent. They touched 3.65 per cent on Tuesday, the lowest since the early 1950s, as tame inflation sparked talk the Reserve Bank of Australia (RBA) had scope to ease not just once, but perhaps several times.
The central bank had already flagged it would consider cutting its 4.25 per cent cash rate in May as long as inflation remain contained.
Interbank futures, which are fully priced for a cut of a quarter point next week, are now pricing a one-in-four chance of a half-point easing. In all, there are 105 basis points of cuts implied for the next 12 months.
"Part of the reason of the bond performance is because our cash rate is a lot higher than most high quality sovereign bonds," said Matthew Johnson, a senior economist at UBS.
With the cash rate having the room to decline significantly, Johnson anticipates Australian bonds to rally further.
"I don't think (10-year yields of) 3 per cent is unreasonable in the near-term."
Australian debt futures firmed with the three-year contract up 0.01 points to 96.950, having jumped earlier this week to 97.030, its highest of 2012.
The 10-year contract added 0.005 points to 96.330, a whisker away from a record high of 96.420 on Tuesday.