The Australian and New Zealand dollars looked set to end a rough week with punishing losses on Friday as markets moved aggressively to price in the risk of a cut in interest rates, driving bond yields to multi-year lows. The Reserve Bank of Australia (RBA) underlined its dovish tilt by downgrading forecasts for economic growth and inflation, while warning that a slide in housing prices threatened to throttle consumer spending.

As the negative news piled up, the Aussie peeled off to $0.7065, a loss of 2.5 percent for the week so far - the sharpest such decline since late 2016. Yields on three-year government debt dived to their lowest since October 2016 and were last off 14 basis points for the week at 1.59 percent.

Ten-year yields had sunk 13 basis points for the week to 2.079 percent, with futures surging to 97.9200. The futures market rushed to fully price in a quarter-point cut in the 1.5 percent cash rate by December. At the start of the week, the betting had been only 50-50.

Copyright Reuters, 2019