AUD/USD fails to cheer N.Korea inaction and uptick in Chinese inflation

Omkar Godbole FXStreet Contributor

The AUD/USD is not particularly impressed by North Korea inaction over the weekend and an uptick in Chinese inflation, forcing us to question whether the range bound Aussie-US 10-year yield spread is playing the spoil sport.

Currently, the pair is trading largely unchanged at 0.8050 levels. It clocked a two-year high of 0.8125 on Friday as USD sell-off gathered steam on fears North Korea may fire another missile over the weekend.

Moreover, risk aversion has taken a back seat this Monday morning after North Korean dictator Kim Jong Un decided to hold a party over the weekend rather than launch another missile. However, it is the USD, which is benefiting the most from the temporary respite.

China reported a better-than-expected CPI and PPI numbers on Saturday. The producer price index (PPI) rose 6.3% from 5.5% in July. The actual number beat the estimate of 5.6%. The uptick in PPI is reflationary for the global economy, however, Aussie still remains flat lined.

Range bound yield spread

The lackluster reaction in the AUD/USD could be explained by the yield spread, which has been restricted to a range of 0.50-0.60 since late August.
A widening of the yield spread, i.e. a move above 0.60 could yield sustainable gains in the Aussie. The spread currently stands at 54 basis points [0.54].

AUD/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik writes -

"Daily basis, the price remains well above its 20 SMA that anyway presents a modest upward slope, while technical indicators are biased higher near overbought levels, supporting additional gains ahead. In the 4 hours chart, however, technical indicators head lower within positive territory and coming from extreme overbought levels, supporting additional slides ahead, with an immediate support around 0.8030, where the pair has its 20 SMA and some intraday highs and lows from this past few days."

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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