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Aussie Consolidates As Yield Spread Narrows
By:
Key Points:
- AUD weakness is broad but not decisive. AUD/USD is down alongside AUD/GBP, AUD/JPY, and AUD/EUR, suggesting the move is more about board based Aussie consolidation than a clean USd driven breakdown.
- Yield support is fading at the margin. While Australia still has a yield premium, the spreads are narrowing.
- AUD/USD is bullish in the medium term but needs a catalyst. The pair is consolidating below the 50-SMA and above the positive Supertrend line on the Renko chart.
AUD/USD Dips as Aussie Weakness Spreads Across Crosses
Aussie is showing weakness today. AUD/USD is down 0.28%, but the broader AUD tells the whole story. AUD/GBP is down 0.28%, AUD/JPY is down 0.216%, and AUD/EUR is down 0.16%. No major news headlines today so it seems its just some consolidation around the Aussie.
Australia’s Yield Premium Has Diminishing Support For AUD/USD
One thing we need to be wary of is the contracting spread between Australia and the US due to rising yields in the US. The carry trade phenomenon is slowly eroding away and may cause the Aussie to be less strong to the USD in the short to medium term.
Australia’s Yield Curve Remains Above the US Curve Across All Tenors, But Rising US Yields Over the Past Month Are Narrowing AUD/USD Tailwind
AUD/JPY Renko Stalls as Momentum Turns Flat
AUD/JPY is looking slightly more bullish than AUD/USD as it is above both its 50-SMA and Supertrend line. Although similar to AUD/USD, momentum is required for the FX pair to break higher and re-test the 114.726. I’m guessing that due to the holiday there’s been a quiet trading session and just consolidation for AUD/JPY.
AUD/JPY 0.25 Brick Renko Chart Shows Price Hovering Above 50-SMA and Supertrend
AUD/USD Renko Pullback Tests Short-Term Support
The bricks for AUD/USD are both red and green as the FX pair is consolidating underneath the 50-SMA and above the positive Supertrend. RSI is below 50 and trending lower while the Z-Score SMA is looking a bit flat. There needs to be some impetus for AUD/USD to break higher or lower so look out for it.
AUD/USD 0.0015-Brick Renko Chart Shows Price Slipping Below the 50-SMA While Holding Above Supertrend Support
Resistance Levels: 0.72715, 0.74070
Medium Term Path: I still am bullish AUD/USD in the medium term but there is some short term consolidation that the FX pair needs to go through before an uptrend resumption. A fresh catalyst is needed to do so. And once we get it the next level to watch in the medium term is 0.72715.
About the Author
Cedric Thompsonauthor
Cedric Thompson, CMT, CFA, is an investment strategist with experience in asset management, corporate strategy, and multi-asset investing.
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