MNI Exclusive Market Analysis: AUD To Lose Yield Protection

By Ian Stannard

     LONDON (MNI) - The AUD is set to lose its yield advantage over the USD on a

sustained basis for the first time since 1981, which is likely to prove a major

event, not just for the AUD but for G10 currency market dynamics more broadly.

     US yields continue to push higher, with the 10-year yield rapidly

approaching the 3% level. Meanwhile, the RBA has maintained a relatively dovish

tone, running against the broader trend of G10 central banks seeking to move

away from ultra-accommodative policy. 

     Indeed, the RBA's Assistant Governor Ellis once again highlighted the

downside risks to interest rates in a recent speech (see MNI: 5 Observations We

Made From RBA Ellis' Speech, Sophia Rodrigues, February 12, 2018). Australian

yields have remained relatively stable recently.

     The yield differential between the AUD and USD has now been eroded, leaving

the traditional high yielding AUD exposed to further downward pressure. 

     The last time US 10-year yields exceeded Australian yields on a sustained

basis was in 1981, a period when AUDUSD fell by nearly 50% (AUDUSD decline 49%

between 1981 and 1986).

     AUDUSD has rebounded from the 200-DMA, currently at 0.7760, in the past few

days but the recovery could prove to be short lived. Failure to move back above

the 0.7905 level, which represents a 38.2% retracement of the decline from the

0.8136 January high, will return the pressure to the downside. A move below

0.7760 would put the focus on November 2017 lows at 0.7500 initially.

For full story with graphical charts, please see email version sent at

1211GMT/0711ET.

--MNI London Bureau; tel: +44 203-586-2229; email: nick.shamim@marketnews.com