The shallow depth of recent dips in AUD/USD should come as an encouraging sign for traders betting on further gains, with the recent consolidation phase a potential precursor to a resumption of the bull trend and Australia-U.S.
yield spread correlation with the aussie also offering encouragement.
Weekly charts show a nice correlation between AUD/USD and 3-year Australian-U.S.
That correlation stands out in the February-March period when economies shut down due to the spread of COVID-19, which prompted the Fed to act aggressively in cutting rates.
Spreads tightened sharply and the U.S. dollar yield advantage eroded.
The tightening helped rally AUD/USD from its 2020 yearly low at 0.5510 to a high of 0.7413 in early September.
That high occurred shortly after the aussie dollar's yield advantage began eroding in early August.
AUD/USD fell from its Sept.
1 peak but began rallying in early November when spreads tightened again and eroded the U.S. dollar's yield advantage once again.
The probability of the current spread trend to extend could be high despite a surge in COVID-19 cases.
Global growth optimism due to vaccines nL1N2IO0Z6 and persistent Fed stimulus nL1N2IJ32P should keep that trend intact.
AUD/USD is likely to trade much higher should spreads continue on their current track and risk sentiment remains buoyant.
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