By Wayne Cole
SYDNEY, July 19 (Reuters) - The Australian and New Zealanddollars hit multi-month highs on Friday as market speculation onaggressive U.S. rate cuts reached fever pitch following dovishcomments from Federal Reserve policy makers.
The Aussie was up at $0.7073, a level not seensince late April. It jumped 0.9% overnight to finally crackstiff resistance around $0.7050 after multiple failures.
The next target is the 200-day moving average at $0.7090.
The kiwi reached its highest since early April at$0.6789, and was last trading at $0.6782 after rising 0.7%overnight. The next goals for bulls is $0.6837.
All the gains came after New York Fed President JohnWilliams said "it pays to act quickly to lower rates at thefirst sign of economic distress," seeming to cement the prospectof a rate cut at the Fed's July 30-31 meeting.
A New York Fed representative later said the speech wasacademic in nature and "not about potential policy actions",which hosed down the market a little.
Yet futures were still implying a 44% chance the Fedwould cut by a drastic 50 basis points this month, up fromalmost zero a couple of weeks ago.
That left Treasury yields down sharply for the week, whileEuropean yields fell further on reports the European CentralBank might make its inflation target more flexible.
Indeed, South Korea, South Africa and Indonesia all easedpolicy on Thursday and analysts at JPMorgan expect another 12central banks to cut rates in the next couple of months."Despite upside surprises in incoming data, the Fed is ontrack to cut 25 basis points at the end of this month and thenagain in September," they said in a note. "The ECB and the BoJare on deck for September."
They see the Reserve Bank of New Zealand easing in August,though the Reserve Bank of Australia (RBA) is likely on hold fora while having already cut in June and July.
The futures market implies around an 84% chance theRBA will trim rates to 0.75% in November, by which time the Fedmay have gone twice itself.
That outlook has helped put a floor under the Aussie andkiwi and, ironically, adds to pressure on the RBA and RBNZ toease merely to stop their currencies from rising further.
Bond markets clearly anticipate more moves, with yields onAustralian three-year paper down 7 basis points forthe week so far at 0.933%.
The 10-year bond futures contract was up at 98.6600,having climbed 10 ticks for the week.
Yields on New Zealand two-year notes were just awhisker above all-time lows at 1.15%.(Editing by Shri Navaratnam)