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US bond yields jump, forcing the Aussie lower

AUD - Australian Dollar

The Australian dollar oscillated throughout trade on Friday to ultimately post a loss of 0.44%. Opening this morning at 0.7754, the Aussie had little to digest domestically and drew direction from the broader global reflation narrative evolving in longer-term bond markets.

Early price action was kick-started by the ECB, who joined the RBA in tackling the threat of increasing bond yields by effectively employing increasing amounts of yield curve controls to lower bond yields. The promise of support from the ECB spurred demand for risk assets with equity markets rallying and the Aussie following suit. The Asian trading session saw the Aussie approach 0.78 but fail to break through, as the Aussie did an about-turn late in the session. The positive price action quickly came to an end as the US 30-year bond auction again showed increasing yields. US 10-year yield reached 1.64% as well, its highest level in more than 12 months. US PPI and Core PPI figures also came in, although largely as expected. Ultimately, the reflation narrative suggests excessive inflation may be on the cards and the Feds current sanguine stance has seen the US dollar well supported. With this at the forefront of traders minds, the Greenback regained some lost ground, which saw the Aussie moderate its weekly gains.

Moving into a new week, all eyes will be fixed on the Federal Reserve's response to increasing bond yields on the 18th. Closer to home, RBA Governor Lowe is set to speak early this morning and the unemployment rate is set for release on Thursday.

Key Movers

The Great British pound shed 0.5% against the worlds' reserve currency to open this morning at 1.3917. With US dollar strength fuelled by bond yields taking center stage, the sterling's domestic docket was largely ignored despite there being some meaningful developments. Month-on-month GDP came in -2.9%, better than expected and the UK took its first step towards reopening. Case loads have also continued to fall and the government's vaccinations goals seem to be on track. Despite the relatively positive news, the sterling succumbed to outsized US dollar gains on Friday.

The Greenback dominated Forex markets on Friday with the US Dollar Index (DXY) reflecting this strength. The DXY gained 0.27% against a basket of currencies, again on the back of three successful bond auctions that saw yields increase. The reflation trade continues to dominate market direction with the Federal Reserves statement on Thursday morning now of increasing significance.

Expected Ranges

AUD/CAD: 0.9616 - 0.9732 ▼

AUD/EUR: 0.6441 - 0.6518 ▲

GBP/AUD: 1.7821 - 1.8036 ▲

AUD/NZD: 1.0737 - 1.0866 ▲

AUD/USD: 0.7707 - 0.7800 ▲