Daily Currency Update

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AUD rebounds as treasury yields correct lower and equities bounce higher

AUD - Australian Dollar

The Australian dollar rebounded through trade on Tuesday, pushing back against the recent appreciation as market sentiment flipped and demand for risk assets improved. Having touched intraday lows at 0.7620 the AUD climb steadily throughout the trading day, breaking back above 0.77 to mark intraday highs at 0.7721. With little of note on the domestic or global macroeconomic ticket markets pounced on reports Chinese state run/backed investment funds were stepping in to defend the local equity market. With prices falling over 10% the promise of support helped bolster investor confidence and drive a rush back to equities particularly tech stocks. The S&P 500 and Nasdaq both enjoyed strong gains, while US treasury yields consolidated, and the USD dollar index fell.

The AUD remains vulnerable to fluctuations in risk trends. Signs the appreciation in Treasury yields may have been over done opens the door for a correction through the week. Our attentions turn to upcoming auctions of 10 year and 30 year US bonds with demand a key indicator of sentiment. A shift away from bonds and back to equities could signal a broader return to risk and help push the AUD back to toward 0.78 US cents.

Key Movers

The US dollar retreated through trade on Tuesday as the reversal in risk demand prompted a correction in recent gains. Having touched fresh highs against the EUR and JPY through the early part of the session the dollar index lost five tenths of a percent through the back half of the trading day as investors moved away from government bonds and treasury yields and back to tech stocks and equities. Having broken 109 against the JPY for the first time in 9 months the USD shifted back to 108.5 while the euro bounced off lows at 1.1835 to push back through 1.19.

Our attentions now turn to US CPI data for insight into recent price pressures. With the senate pushing through President Biden’s near 2 trillion dollar stimulus plan, concerns inflation could force Fed policy change are mounting. An outsized CPI print could put pressure on risk demand for fears the Fed will tighten financial conditions to stave off rising price pressures.

Expected Ranges

AUD/USD: 0.7620 - 0.7850 ▼

AUD/EUR: 0.6420 - 0.6520 ▲

GBP/AUD: 1.7820 - 1.8180 ▼

AUD/NZD: 1.0690 - 1.0850 ▲

AUD/CAD: 0.9670 - 0.9830 ▲