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Jul 30 - 11:55 AM

AUD/USD - COMMENT-Bond Market May Unlock More AUD/USD Gains After Nearly 31% Spike

By Christopher Romano  —  Jul 30 - 10:25 AM

AUD/USD has surged nearly 31% since its March 19 low and could add to those gains if Australian-U.S.
government bond yield spreads break above big resistance.

Central to this scenario is divergent monetary policy after the Fed reiterated its commitment to using all available tools to help the U.S. recovery nL2N2F01ZK while the RBA is not considering new measures and not overly concerned about aussie dollar strength nS9N2DS02H.

That policy disparity could drive spreads above resistance and potentially propel AUD/USD above structural resistance near 0.7200 and towards 0.7485/0.7535.

AUD/USD is highly correlated to Australian-U.S.
3-year yield spreads, which mapped the aussie's trajectory over the last 10 years from their 444 basis-point peak in October 2010 to their July 2019 trough of -103 bps.
AUD/USD peaked roughly nine months after spreads did at 1.1081 in July 2011, then fell to its nadir of 0.5510 this March.

The U.S. dollar's yield advantage began diminishing in late-2019, coinciding with AUD/USD basing attempts before COVID-19, which sent the aussie tumbling then recovering to near 15-month highs.

The Australian dollar has now retaken the yield advantage, with spreads close to breaking key resistance around +0.17/0.21%.

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Refinitiv IFR Research/Market Commentary


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