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A$ Struggles On Lower Front End Yields

AUD

AUD/USD is on the back foot. We are down close to 0.40% from NY closing levels. Sitting back at 0.6945, which is close to the overnight lows of 0.6935.

  • Yield differentials continue to move against the AUD in the front end. The 2yr spread, down a further 10bps or so, to be back at -15bps. We were around +15bps early in yesterday's session, so a meaningful adjustment.
  • The AU-US 2yr differential continues to struggle above 0bps.
  • These moves followed Westpac's Bill Evans update, which stated beyond July there won't be any more 50bps hikes, whilst also forecasting the terminal rate will be 2.35%, which is well below current market pricing levels.
  • Weaker US equity futures are also weighing at the margin, with AUD/JPY down more than 0.50% since the open to be back sub 94.70.
  • AUD/NZD is still marginally higher though, holding above 1.1020 for now.
  • Iron ore is also down a touch to sub $112/tonne.
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