AUD/USD Crushed Ahead of Jobs Report as US Dollar, Yields Surge

AUD/USD suffered its worst daily fall in over three months as strong US data sent Treasury yields and the US dollar sharply higher. With Australian jobs data due today, the Aussie enters the release under pressure and already within striking distance of the 70c handle.

 

AUD/USD Slides Towards 70c as US Yields and Dollar Surge

US Yields Surge as Fed Repricing Lifts the Dollar

The US dollar was the strongest FX major on Wednesday after a strong set of flash PMIs reinforced hawkish Fed expectations and sent Treasury yields sharply higher. The composite PMI reached a five-year high according to S&P Global, raising concerns that the economy is reaccelerating, with activity and price pressures both running hot. That fuelled a sharp Treasury sell-off as markets priced a more hawkish Fed path.

Notably, yield spreads are narrowing as shorter-dated yields rise faster than the long end — a bear flattening that points to Fed repricing rather than simply higher term premium. Rising Treasury volatility has accompanied the move, helping propel the US dollar higher and adding further pressure to AUD/USD.

The MOVE index also jumped sharply, signalling a rise in expected Treasury-market volatility as investors reassessed the path for US rates. That reinforces the view that this was a broader rates repricing, rather than simply a gradual rise in long-end yields.

Source: ICE, BoFAML, TradingView

 

AUD/USD Leads Risk-Off Slide as US Dollar Strengthens

• Nikkei futures down -1.5%, Hang Seng fell -1%, SPI 200 fell -1.2%
• AUD/USD was the weakest FX major, bearing the brunt of the risk-off session.
• The US dollar strengthened against all major currencies.
• Gold slipped back below 4300, suggesting some safe-haven positions may have been liquidated to offset losses elsewhere.
• Silver, copper and platinum also fell as metals came under broad pressure.
• Crude oil continued lower amid hopes of progress towards peace in the Middle East.
• The risk-off tone weighed on global equities, with the Nasdaq 100, S&P 500 and Dow Jones all falling around 0.7%–0.9%.
• Nikkei futures fell 1.5%, the Hang Seng dropped 1%, while SPI 200 futures fell around 1.2%.

Australian Jobs Data Overshadowed by Surging US Yields

It was already debatable how important today’s employment figures would be ahead of next week’s RBA meeting. But the surge in bond yields seems to have stolen the show, with AUD/USD suffering its worst day in over three months.

Market pricing and economists are firmly backing a hike next week, making it more a case of whether the RBA signals another hike could follow. But with Governor Michelle Bullock stating that an unemployment rate of 4.5%–5% could help cool inflation pressures, the closer unemployment moves towards 5%, the greater the odds that the RBA tightening cycle is nearing its peak.

To that end, today’s labour report probably matters more for the path beyond next week than the meeting itself. A stronger jobs report would reinforce the case for further tightening, while a rise in unemployment towards 5% could strengthen the view that the RBA is approaching the end of its hiking cycle.

Source: ABS, Calculations by Python

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AUD/USD Technical Analysis: Australian Dollar vs US Dollar

The Australian dollar is on track for a third week lower, and its most aggressive selloff of the three. With 70c close enough and downside momentum strong enough, it would almost be rude not to test it at this point. An OK-or-better jobs report could help AUD/USD bounce from these lows, but momentum suggests bears may be looking to fade into any such rebound.

Note on the daily chart that support was found around the monthly S1 and weekly S2 pivot points near 0.7030. The 0.7075 low and weekly S1 pivot area sit nearby as potential resistance for bears eyeing a move towards, and potential break of, 70c.

That said, 70c is a major psychological level to break, so I suspect it will hold, at least initially — especially with the 200-day SMA at 0.7019 and 200-day EMA at 0.6983 on hand.

Source: ICE, TradingView