AUD/USD - risk reversals flat lined, yield differential hovers near 4-month low

AUD/USD risk reversals show lack of bias in the options market.
10Y AU-US yield spread/differential shows signs of life, but still hovers near 4-month low.

Omkar Godbole FXStreet Contributor

Risk reversals

The AUD/USD one-month 25 delta risk reversal continues to move sideways in the range of -0.60 to 0.80. The consolidation seen on the above chart shows a lack of bias or indecision in the options market.

Yield differential

The 10-year yield spread hit a 4-month low of 24.3 basis points on Friday and currently stands at 27.7 basis points.
A slight recovery, though encouraging, has failed so far to lift the AUD/USD pair above the 200-day MA level of 0.7697.

RBA has more reason to be cautious than optimistic

Kathy Lien from BK Asset Management writes, "having traded in a relatively tight range over the past week, AUD/USD is prime for a breakout and according to the table below, the central bank has more reason to be cautious than optimistic. Although retail sales stabilized after falling in September, zero growth in demand means spending is weak. Labor market activity and the annualized pace of inflation has also deteriorated on the back of softer manufacturing, service and construction sector activity, giving the RBA very little reason to alter their bias. The good news is that consumer and business confidence is up and the currency is down. But In the context of rising U.S. rates, the RBA doesn't need to be all that cautious for AUD/USD to fall yet given how much it has declined over the past 2 months (nearly 5 cents), a tinge of optimism would send AUD/USD towards 0.7750 quickly."

Author

Omkar Godbole

FXStreet Contributor

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

EUR/USD hovers around 1.1850 ahead of FOMC Minutes

EUR/USD stays on the back foot around 1.1850 in the European session on Wednesday, pressured by renewed US Dollar demand. Traders now look forward to the Minutes of the Fed's January monetary policy meeting for fresh signals on future rate cuts.

GBP/USD defends 1.3550 after UK inflation data

GBP/USD is holding above 1.3550 in Wednesday's European morning, little changed following the UK Consumer Price Index (CPI) data release. The UK inflation eased as expected in January, reaffirming bets for a March BoE interest rate cut, especially after Tuesday's weak employment report.

Gold retains bullish bias amid Fed rate cut bets, ahead of Fed Minutes

Gold sticks to modest intraday gains through the early European session, reversing a major part of the previous day's heavy losses of more than 2%, to the $4,843-4,842 region or a nearly two-week low. That said, the fundamental backdrop warrants caution for bulls ahead of the FOMC Minutes, which will look for more cues about the US Federal Reserve's rate-cut path.

Pi Network rally defies market pressure ahead of its first anniversary

Pi Network is trading above $0.1900 at press time on Wednesday, extending the weekly gains by nearly 8% so far. The steady recovery is supported by a short-term pause in mainnet migration, which reduces pressure on the PI token supply for Centralized Exchanges. The technical outlook focuses on the $0.1919 resistance as bullish momentum increases.

Mixed UK inflation data no gamechanger for the Bank of England

Food inflation plunged in January, but service sector price pressure is proving stickier. We continue to expect Bank of England rate cuts in March and June. The latest UK inflation read is a mixed bag for the Bank of England, but we doubt it drastically changes the odds of a March rate cut.

Top 3 Price Prediction: Bitcoin, Ethereum, and Ripple face downside risk as bears regain control

Bitcoin, Ethereum, and Ripple remain under pressure on Wednesday, with the broader trend still sideways. BTC is edging below $68,000, nearing the lower consolidating boundary, while ETH and XRP also declined slightly, approaching their key supports.