The Australian dollar's getting smoked

YASUYOSHI CHIBA/AFP/Getty Images
  • The Australian dollar has been smoked, tumbling against most major crosses on Wednesday. It’s now threatening to hit fresh multi-year lows against the greenback.
  • The catalyst behind the move was a spike in US bond yields following the release of strong US economic data. This helped propel the US dollar higher.
  • The economic data calendar is quiet on Thursday, leaving sentiment, technicals and headlines to dictate direction. Australian trade data is out but it will take a massive surprise to move the Aussie.

The Australian dollar is getting smoked, falling heavily against most major crosses on Wednesday.

As such, it’s not within touching distance of falling to fresh multi-year lows against the greenback.

Here’s the scoreboard at 7am in Sydney.

AUD/USD 0.7102 , -0.0084 , -1.17%
AUD/JPY 81.33 , -0.35 , -0.43%
AUD/CNH 4.8926 , -0.0546 , -1.10%
AUD/EUR 0.6186 , -0.0036 , -0.58%
AUD/GBP 0.5488 , -0.0048 , -0.87%
AUD/NZD 1.0896 , 0.0002 , 0.02%
AUD/CAD 0.9142 , -0.0076 , -0.82%

With the exception of the Kiwi, the Aussie was hammered across the board, finishing at its session lows against the greenback.

However, rather than being driven by weak Australian economic data or renewed concerns surrounding emerging markets, the Aussie’s steep decline on this occasion was driven by a spike in US bond yields following the release of incredibly strong US economic data during the session.

The ISM’s non-manufacturing PMI jumped to 61.6 points in September, indicating that activity levels across the US service sector improved at the fastest pace in 21-years. The internals of the report were also strong, including news orders and employment growth.

Adding to optimism, the separate ADP National Employment report — a measure of US private sector hiring — reported that payrolls surged by 230,000 last month, the largest increase since February this year.

Both the ADP and ISM labour market indicators point to the likelihood of a bumper US-non-farm payrolls report for September when released on Friday.

The bullish data saw US bond yields surge to fresh multi-year highs.

The yield on benchmark 10-year notes surged as high as 3.187%, according to data from Thomson Reuters, a level not seen since 2011. Two-year note yields hit a decade high while 30-year bonds rose to multi-year highs.

With US yields surging higher, it helped to fuel strong gains in the greenback, seeing it lift against all of the major crosses.

As seen in the hourly chart below from Investing.com, that list included the Aussie dollar.

It was hammered, losing over 1% for the session.

Investing.comAUD/USD Hourly Chart

As a result of Wednesday’s steep fall, it looks a near-certainty that it will test the multi-year lows hit in early September.

The AUD/USD currently trades at .7102.

Investing.comAUD/USD Daily Chart

As for whether that occurs during Thursday’s trading session, it will likely be determined by the performance of regional markets, especially the offshore-traded Chinese yuan, given a light economic calendar in Asia.

The only major release of note comes from Australia with the release of trade data for October at 11.30am. Economists are looking for a surplus of $1.4 billion in August, down marginally from $1.551 billion in July.

While the trade release has moved the Aussie in the past, one suspects it will have to be a big surprise in either direction to make a meaningful impact today.

The economic calendar for the remainder of Asia, and in Europe, is incredibly quiet otherwise, leaving sentiment, technicals and headlines to dictate direction.

Jobless claims, Challenger job cuts and factory orders will be released in the US. However, they’ve usually been overlooked by markets in the past.

On the central bank front, Quarles of the US Fed and Coeure of the ECB are both scheduled to be in action.

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