The yields story in AUD/USD isn't going away any time soon

Author: Justin Low | Category: News

The yields spread between US and Australia 10-year bonds widens to 76 bps

AUD/USD vs yields
And that's the widest spread observed since the 1980's as it continues to inch further in favour of Treasuries since the turnaround last year. AUD/USD has largely been dominated by the yields story since 2H 2017 and with the RBA set to cut its cash rate in the coming months, it's going to keep this narrative in play after several months of pause as the Fed is in a wait-and-see mode currently.

If you're wondering why traders continue to favour the dollar despite the weakening fundamentals in the US, it's because everywhere else is doing much worse and this is just one example of it.

In the UK, there's Brexit worries still ongoing. In Europe, economic conditions are deteriorating rapidly in Germany and political risks still remain present through Italy. In Australia and New Zealand, central banks are already have one foot in rate cut circle.

And with yields differential like what we're seeing above, it will continue to keep the dollar attractive to spot currency traders for quite a while yet - until the Fed decidedly gets on the rate cut bandwagon that is.

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