The AUD is among the weakest performers in trading today
It's been a case of taking blow after blow for the aussie this week. On Monday, the currency was weighed down weaker Chinese data over the weekend. Yesterday, the RBA didn't provide any encouragement and the currency was also beaten down as a result of poorer risk sentiment. Today, it's a case of poor data knocking down the aussie even in light of improved risk sentiment across markets.
But surely you'd think the aussie should see some reprieve on the back of the latter factor, no?
Well, the thing about markets is that things don't work that simply. One of the main drivers affecting the aussie for this year has been that of yields. And for AUD/USD more specifically, it's the yields spread between Australia and US bonds.
It's not the first time I've highlighted this over the past few months and this continues to be a key driver in AUD/USD sentiment despite the stretched positioning in aussie shorts at the moment.
Currently, the yields spread between 10-year Australia and US bonds sits at 43 bps in favour of Treasuries. That's the widest spread working against Australian bonds since the 1980's.
And as long as the Fed continues to hike rates further still with the RBA standing pat, it's extremely difficult to see AUD/USD pull off any sustained rallies to the upside as long as the spread divergence continues to grow between yields from both countries.