Tuesday was not a good session for the Australian dollar.
It tumbled by close to 1.5% against the US dollar, taking its decline from the highs seen last week to 3.5%.
The catalyst for the decline was US dollar strength, which in turn was driven by a continued lift in longer-dated US bond yields.
The 10-year US treasury note finished trade yielding 1.727%, the highest level seen since June 23, the day before the UK Brexit referendum result. On Tuesday alone it spiked by 6.4 basis points.
It’s safe to say that recent market movements, including for the Aussie, are not being driven by the Fed but a global move in bond yields.
“Core longer dated yields have not retraced their moves higher seen post the ECB decision to leave its asset buying programme unchanged last week, reflecting a growing concern that policy makers no longer think the benefits from flatter curves are outweighing the costs,” wrote Rodrigo Catril, currency strategist at the NAB in his morning note.
That view has been gaining traction with global investors, sparking a selloff in bond markets. That, in turn, has been undermining higher-yielding risky assets such as stocks and high-yield credit markets.
Clearly, the Aussie has not been immune.
The AUD/USD closed the session buying .7462, the lowest closing level since July 22, a seven-week low. In early Asian trade on Wednesday it currently buys .7463.
As opposed to the raft of economic data released yesterday, the economic calendar is devoid of market moving events on Wednesday.
Domestically, markets will receive the monthly Westpac-MI consumer sentiment report for September at 10.30am AEST. There’ll also be a number of second tier-data releases in Japan.
None are likely to be influential on markets.
Later this evening, Guy Debelle, assistant governor of the RBA, will speak in London, although that too is unlikely to rock the boat, says Catril.
“Given that his recent speeches have been focused on FX regulation the chances are that we get more of the same,” he says.
Elsewhere, while data will be released in Europe and the US overnight, it’s unlikely to impact the Aussie.
Given the relative dearth of major data events, it suggests that movements in longer-dated sovereign bond yields, the USD/JPY, stocks and crude oil futures will likely be influential on movements in the Aussie today.
Here’s the scoreboard as at 7.55am AEST.
- AUD/USD 0.7463 , 0.0001 , 0.01%
- AUD/JPY 76.52 , -0.01 , -0.01%
- AUD/CNH 4.9930 , 0.0003 , 0.01%
- AUD/EUR 0.6653 , 0.0003 , 0.05%
- AUD/GBP 0.5658 , 0.0002 , 0.04%
- AUD/NZD 1.0290 , 0.0002 , 0.02%
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