AUD/USD: Improving terms of trade support stronger aussie – MUFG
|The AUD/USD pair remains close to its recent highs around 0.7750 with only limited negative impact so far from the rise in US yields. The Reserve Bank of Australia (RBA) argues that the aussie would be materially stronger without loose policy as the Australian dollar would normally have strengthened more on the back of the improving outlook for global growth, per MUFG Bank.
Key quotes
“So far this year the 10-year US Treasury yield has risen by almost 40 basis points. However, the move higher in the equivalent Australian government bond yield has been even larger as the 10-year yield has risen from a low of 0.97% at the end of last year to a high overnight of 1.40%. As a result, yield spreads have not moved in the US dollar’s favour against the Australian dollar.”
“The RBA estimates that their policy easing measures have contributed to the Australian dollar being as much as 5% lower than otherwise in trade-weighted terms. The external environment on the whole remains supportive for the Australian dollar alongside relative domestic cyclical momentum.”
“Downside risks for the Australian dollar would increase if the ongoing rise in US yields was to trigger broader correction lower in risk assets. At the same time, the Australian dollar could prove sensitive to signs of ongoing tensions between the US and China under the Biden administration.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.