AUD/USD rally contradicts breakdown in 2Y AU-US yield spread

The 2-year yield spread no longer guides the exchange rate?

Omkar Godbole FXStreet Contributor

AUD/USD bottomed out at 0.7501 on Dec. 8 and rose to a high of 0.7979 yesterday. The 6.37 percent rally from the December low contradicts the drop in the 2-year Aussie-US yield spread.

Yield spread chart

The 2-year spread fell into the negative in November and remained depressed near zero levels throughout December.
As of writing, the Aussie 2-year bond yields only 6 basis points (bps) more than its US counterpart.
The declining spread indicates the Aussie dollar is no longer a high yield currency.

Still, the AUD/USD pair has rallied more than 6 percent from the December low of 0.7501. Clearly, the correlation has broken down.

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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