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AUD extends move below 0.75 amid surge in real US yields

Friday 8 April, 2022

Daily Currency Update

The Australian dollar edged lower through trade on Thursday, extending a break back below 0.75 US cents amid an extended risk off shift and broadly stronger USD. Expectations for aggressive Federal reserve monetary policy tightening prompted an extension in US bond yields and a steepening in the US yield curve. 10-year bond yields eyed 3-year highs, while real yields continued their month long rally, nearing a two year peak. The pivot off an inverted yield curve has fueled demand for the USD through the latter half of the week forcing the AUD off its post RBA high. Having come under selling pressure, an extension in the risk-off narrative has compounded losses as markets scramble to account for extended Shanghai lockdowns. New Covid cases in Shanghai continue to rise rapidly and the city is now in an indefinite lockdown with officials seemingly no nearer to giving up their Covid zero policy. Expanded lockdowns in China will only add to already stressed global supply chains, extending the impact of supply driven inflation pressures. Having found support at 0.7465, the AUD opens this morning at 0.7480 US cents, as our attentions remain affixed to bond yield performance and the broader risk narrative as we work toward the weekly close.

Key Movers

The USD index was stronger through trade on Thursday, closing in on 18 months highs on the heels of a surge in real yields. Global bond yields have rallied strongly through the back half of this week with real yields dragged higher and closing in on a 2-year high, up some 30 basis points in the last month alone. With market expectations for aggressive central bank monetary policy amendments firming, the rise in yields has shifted off inflation expectations and is now consistent with monetary policy forward guidance suggesting perhaps a greater degree of stability as we move through Q2. The Dollar index was up 0.2% on the day with the euro marginally lower at 1.0880 and the pound flat having bounced off lows at 1.3055. With little of note on the global macroeconomic ticket our attentions remain with global yield performance and a changing risk environment for direction into the weekend.

Expected Ranges

  • AUD/USD: 0.7420 - 0.7590 ▼
  • AUD/EUR: 0.6780 - 0.6900 ▼
  • GBP/AUD: 1.7350 - 1.7690 ▲
  • AUD/NZD: 1.0820 - 1.0920 ▼
  • AUD/CAD: 0.9380 - 0.9450 ▼