AUD/USD turns positive, AU-US yield spread rises on RBA’s status quo decision

• The Reserve Bank of Australia (RBA) kept interest rates at record lows as expected.  
• The central bank sounded relatively upbeat due to strong jobs.  
• The AU-US two-year bond yield spread rose by three basis points post-RBA, helping the AUD/USD turn positive.  

The bid tone around the Aussie dollar strengthened, pushing the AUD/USD pair to a session high of 0.7246 after the RBA kept rates unchanged as expected but sounded relatively upbeat due to strong jobs.  

The central bank lowered the growth outlook to 3 percent for 2013, took note of the deterioration in the domestic and global economy, cited household spending as a key risk to the economy, but sounded upbeat on the labor market and refrained from reinforcing markets’  belief that a rate cut could be in the offing by the end of 2019.  

Essentially, the RBA is banking on the sustained labor market tightening to push inflation higher towards its target.  

As a result, the spread between the two-year Aussie and US government bond yields has improved to -67 basis points from -70 basis points seen ahead of the RBA rate decision.  

The uptick in the rate sensitive yield differential is boding well for the AUD. The technical outlook, however, would turn bullish only above the recent high of 0.7295. As of writing, the pair is trading well above 0.7240.  

Technical Levels