A$ Shrugs Off Consumer Sentiment Dip, As Yields Surge

It's very much a case of deja-vu for AUD/USD, as it recovers from overnight lows on the back of positive onshore yield momentum. We last sit just above 0.6900, around 0.50% above NY closing levels.

• Today's session is unfolding in a similar fashion to yesterday's one, with the A$ outperforming on the back of local yield gains. The currency is the best performer within the G10 FX space.
• The relentless rise in ACGB yields continues. The 10yr is only marginally off highs above 4.10%, still +14bps on the day. The 2yr is up by 174bps to 3.20%. The AU-US 2yr spread is back to -15bps, after being wider than -40bps earlier in the week.
• Two local kickers for yields today have been the minimum wage hike of 5.2%, while the market has also reacted to Lowe's interview from overnight around 'doing what it takes' to bring inflation back to the 2-3% range.
• Earlier, the Westpac consumer sentiment index fell 4.5% to 86.4. We are above 2020 lows, but not by much, see the chart below. Most of the decline came in the categories related to consumer finances and the outlook.
• ANZ's weekly consumer confidence measure dropped 7.6% last week. ANZ noted 'Outside of the pandemic, consumer confidence hasn't been this low since January 1991, the midst of the early 1990s recession.'

Fig 1: Westpac Australian Consumer Sentiment Index

Source: Westpac/MNI - Market News/Bloomberg