The Australian dollar remains under pressure

Jeff J Mitchell/Getty Images
  • The AUD/USD fell again on Wednesday, hitting the lowest level seen in 2018.
  • Another lift in US bond yields helped to support the US dollar.
  • All of the major market events today arrive in the second half of the session, headlined by the ECB’s April monetary policy decision.

The Australian dollar continues to slide, hitting a fresh 2018 low on Wednesday.

Here’s the scoreboard as at 7am AEST.

AUD/USD 0.7564 , -0.0039 , -0.51%
AUD/JPY 82.76 , 0.03 , 0.04%
AUD/CNH 4.7810 , -0.0052 , -0.11%
AUD/EUR 0.6219 , 0.0005 , 0.08%
AUD/GBP 0.5429 , -0.001 , -0.18%
AUD/NZD 1.0699 , 0.0024 , 0.22%
AUD/CAD 0.9713 , -0.004 , -0.41%

As has been the case for the past week, the dominant theme was another increase in US government bond yields, rising to fresh multi-year peaks during the session.

Benchmark 10-year US government bond yields currently sit at 3.03%, the highest level since January 2014. Earlier on Wednesday, two-year US government bond yields — heavily influenced by monetary policy expectations — hit a high of 2.5%, a level not see since 2008.

“Probably the biggest market news since Australia and New Zealand broke off on Tuesday for ANZAC day is that 10 year US Treasuries now trade clean above 3% for the first time since early 2014,” says Ray Attrill, Head of FX Strategy at the National Australia Bank.

“This has supported a further rise in the US dollar with the narrow DXY index now above 91, leaving it above the range in which it has been confined since mid-January.”

While higher US bond yields, leading to a stronger US dollar and a deterioration in investor sentiment, has undoubtedly weighed on the Aussie over the past week or so, Attrill says the Aussie is now approaching technical support which could halt its recent slide.

“AUD/USD is now within half a cent of challenging its December 2017 low of 75 cents,” he says.

“This is as significant level that we expect to provide more formidable support than either the 0.7650 recent range lows or the 0.76 level.”

As seen in the chart below, the AUD/USD has lost over 3% during the past week.

AUD/USD Hourly Chart

Turning to the day ahead, there’s very little on the Asian calendar that appears likely to interest traders, hinting that sentiment, technicals and gyrations in bond yields will continue to dictate broader market movements.

The main event on Thursday will be the release of the ECB’s April monetary policy decision at 9.45am AEST.

While markets aren’t expecting any major surprises, Joseph Capurso, Senior Currency Strategist at the Commonwealth Bank, says there may still be something in the meeting for traders.

“We expect no change in any of the ECB’s policy interest rates,” he says.

“At his regular post meeting press conference, we expect ECB President Mario Draghi to emphasize Eurozone’s muted inflation to justify the ECB’s highly accommodative monetary policy.

“Given the weakness in EUR ahead of the ECB’s meeting, we think there is a good chance EUR lifts.”

Outside of the ECB meeting, markets will also receive durable goods orders, jobless claims, goods trade balance and wholesale inventory data from the United States.

The goods trade balance, in particular, could prove influential on movements in the US dollar.

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