To trade the AUD is also to trade on when the RBA will move
It's not much of a surprise to see the Australian dollar at the bottom of the pile as among the worst performing major currencies so far this year. The currency held last spot for majority of the year before the kiwi surpassed it after the RBNZ decided to turn more dovish in its latest meeting.
But in essence, rising geopolitical tensions globally coupled with central banks that don't look anywhere close to rising rates and may even err towards cutting them is no recipe for a strong currency. And the latter is one of the major reasons why the aussie is getting pummeled in 2018.
If you need a reminder of why the RBA is not anywhere close to get back on the tightening horse, here you go:
I think you can even start to apply the above to 2019 as well by the way things are going currently - especially if China starts to "catch a cold". And in its latest monetary policy statement, the RBA also makes a special mention to China for what it's worth.
But the fact that the RBA is in such a predicament is really causing a headache for the aussie, as it means that whatever rallies would be difficult to sustain as long as there is monetary policy divergence such as what we're seeing in AUD/USD.
The 10-year yields spread is now 30 bps in favour of the US and despite the improvement in risk sentiment today the aussie is struggling to get off the ground. Australia 3-year bond yields have fallen to its lowest levels since December today and that is helping to pin down the aussie as well as cross-selling against the kiwi.
If this kangaroo is to recapture a spring in its step, it has to receive support from the RBA. Otherwise, this plight is set to continue for quite some time still.
