Dollar down, bonds up amid euro concerns
The Australian dollar was nursing losses on Monday while bond futures bounced off 10-month lows as a surprise decision to tax depositors in a Cyprus bailout deal revived worries about contagion in the eurozone.
The US dollar and yen were major beneficiaries of the shift from risk, with the Japanese currency shooting higher as speculators were caught badly short of the currency.
The Aussie slid to 98.20 yen, down over a full yen from late Friday, while dropping a third of a US cent to $US1.0360.
Yet Australian government bonds did well as a triple-A rated safe haven, giving three-year bond futures their biggest daily gain in six months.
The rally was all the greater as bonds had been battered last week when upbeat domestic data led the market to all but price out the chance of another rate cut in Australia.
"This move may be exaggerated," said Michael Turner, a strategist at RBC Capital Markets.
"Yet, for a market which had been toying with removing all easing from the front of the curve, the sharp reminder that European financial stability still offers large tail risks does not leave us in a hurry to re-enter short (bond positions)."
The three-year bond contract jumped 0.18 points to 97.060, while the 10-year contract gained 0.15 points to 96.500, leading to a slight steepening of the yield curve.
For currencies, the big move was in the yen as investors have recently been busily borrowing in the currency to buy higher yielding assets in expectations of more aggressive stimulus from the Bank of Japan.
The weight of buying had lifted the Aussie to a 4-1/2-year peak of 99.99 yen last week before the scare over Cyprus forced a wave of short-covering.
While a bailout for the indebted island nation had long been expected the inclusion of a tax on deposits was a major surprise, sparking worries it could become a precedent for other deals.
If approved by the island's parliament on Monday, it will be the first time savers have had to foot part of the bill for a European bailout.