AUD/USD slips into the red as US-AU yield spread hits record high


  • AUD/USD is flashing red this Thursday morning in Asia, courtesy of widening yield differential.
  • The US-AU 10-year bond yield spread hit a record high a few minutes before press time.
  • Risk aversion could be adding to the bearish pressures around the AUD.

AUD/USD is feeling the pull of gravity with the spread between the US and Australian 10-year bond yields rising to lifetime highs.  

The currency pair is currently trading at the session low of 0.6868, having hit a high of 0.6883 earlier today.

The difference between the 10-year US and Aussie government bond yields hit a record high of 80 basis points earlier today and is currently seen at 78 basis points. Put simply, the Australian government bond is now yielding close to 80 basis points less than its American counterpart. As a result, there is little incentive to hold the AUD right not - more so, as the Reserve Bank of Australia is expected to cut rates next month.

Apart from the yield differential, the AUD may be feeling the heat of the risk-off tone in the financial markets. As of writing, the futures on the S&P 500 are reporting a 0.48% drop. The major Asian indices are also flashing red.

Looking forward, the yield differential may widen further in the USD-positive manner, as the odds of the Fed rate cut dropped on Wednesday following the release of the Fed minutes. As a result, the AUD could hit fresh multi-month lows below 0.6865.

Pivot levels

    1. R3 0.6921
    2. R2 0.6909
    3. R1 0.6895
  1. PP 0.6883
    1. S1 0.6869
    2. S2 0.6857
    3. S3 0.6843

 

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