The Australian dollar ripped higher overnight, finding strength in the latter parts of trade as US bond yields fell.
First, here’s the scoreboard as at 8am AEDT:
- AUD/USD 0.7444 , 0.0077 , 1.05%
- AUD/JPY 85.93 , 0.63 , 0.74%
- AUD/CNH 5.1284 , 0.0371 , 0.73%
- AUD/EUR 0.7039 , 0.0059 , 0.85%
- AUD/GBP 0.6100 , 0.0049 , 0.81%
- AUD/NZD 1.0554 , 0.0015 , 0.14%
Two reasons were cited for the decline in US bond yields during the session: Donald Trump disappointed in his first press conference as president-elect, failing to provide specific details on his fiscal spending plans, while there was strong demand for an auction of 10-year US treasury notes, further pressuring yields.
“US president-elect Donald Trump has given his first formal press conference since winning the election, but left markets disappointed,” said Kristina Clifton, an economist at the Commonwealth Bank. “There was little on his spending plans and trade policies, with Russia, hacking and overpriced drugs instead the main talking points.”
A $US20 billion auction of US treasury notes was also met with strong demand, acting in unison with the disappointment created by Trump to lower yields and, as a consequence, the US dollar.
The Australian dollar was a major benefactor, as seen in the chart below from Thomson Reuters.
It’s the AUD/USD 1-minute tick chart, shown in yellow, versus the US 10-year note yield, in white, over the same time frame. We’ve inverted scale of the latter to underscore the relationship seen overnight.
When US yields fell, the Aussie dollar rose — as simple as that.
At .7444, the AUD/USD currently sits at the highest level seen since mid-December, having added over 4% since Boxing Day.
With absolutely no market moving events scheduled in Asia, the movements in US bond yields may well continue to drive those in the Aussie today.
Later in the session, trade will be dominated by central bank policy on both sides of the Atlantic.
In Europe, the ECB will release the minutes of its December monetary policy meeting while in the US there are no less than five US Federal Reserve officials scheduled to speak.
“Fed Harker (hawk and voter) speaks on the outlook for the economy in Pennsylvania, Fed’s Evans (dove, voter) and Lockhart (centrist, non-voter) take part in a panel in Florida, Fed Bullard (centrist, non-voter) speaks to the Forecasters Club of New York and Fed Kaplan (hawk, voter) speaks at the Dallas Regional Chamber,” said Rodrigo Catril, currency strategist at the NAB.
Catril adds that all five are expected to take questions from their respective audiences.
Outside of central bank speak, the data calendar is quiet this evening.