Recovers From Lows

AUD/USD finished lower on Wednesday, but recovered from session lows hit towards the end of the Asia-Pac session. The pair dropped as low as 0.7226 before recovering to clos at 0.7272, last trading up 4 pips on the session. AUD/NZD rose through the overnight session, finishing the day with gains of 47 pips as AUD outperformed its Antipodean peer despite the RBNZ rate hike.

• CBA notes that a favourable yield dynamic compared to the US could benefit AUD in the near term. "Australian yields have increased more than US yields. Now that the spread is positive, offshore investors might start to look more favourably at Australian government bonds, particularly as hedge costs will stay low, while USD hedging costs should start to rise. The positive spread can provide AUD some support, or at least not weigh so heavily on AUD."
• From a technical perspective the AUD/USD outlook remains fragile following last week's move lower and traded lower Wednesday. 0.7194 was cleared recently, 76.4% of the Aug 20 - Sep 3 rally and this paves the way for a move towards 0.7106, the Aug 20 low and bear trigger. A break would confirm a resumption of the broader downtrend that started late February. Initial firm resistance is seen at 0.7328, the 50-day EMA.
• The domestic economic docket is thin on Thursday, weekly payroll data is the only release. Looking ahead next week brings the NAB survey and labour market data.