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  • AUD/USD stalls on the downside despite the greenback’s relentless run. 
  • US government bond yields have logged big moves in recent sessions, supporting the greenback.

AUD/USD is currently trading at 0.7770 and is down over 0.7% at the time of writing with the price falling from a high of 0.7760 to a low of 0.7666 on the day/

In the latest positioning data, asset managers bought AUD while speculators turned USD buyers.

However, analysts at ANZ bank predict that USD positioning will be remaining on the weaker side, ”given increased hopes of further economic stimulus in the US under a Biden administration and the progress of COVID-19 vaccination drives in different parts of the world.”
 
However, for the meanwhile, on a spot basis as well, the dollar edged higher across the board, extending a rebound from the near3-year low hit last week.

Bulls have been taking strength from the recent spike in Treasury yields and the prospect of a growth boost from higher US fiscal stimulus. 
US President-elect Joe Biden.

Biden takes office on Jan. 20 with Democrats able to control both houses of Congress, has promised “trillions” in extra pandemic-relief spending. 

This has been baked into the US dollar but the currency has been supported in recent weeks thanks to rising US yields. 

US government bond yields have logged big moves in recent sessions, with the Treasury yield curve experiencing a significant increase in yields in longer-dated bonds. 

Benchmark Treasury yields rose to 10-month highs on Monday as investors priced for higher government spending. At 99 basis points, the spread between the 2-year and 10-year Treasury yield is at its steepest since July 2017. 

Meanwhile, while net AUD short positions dropped last week, they still remain in negative territory despite the relative strength of the AUD on the spot market. 

China and Australian trade tensions and the Reserve Bank of Australia’s QE policy could be tempering the attraction of the AUD at the same time the greenback is making a comeback. 

Going forward, however, the extraordinary performance of iron ore, which moved back above $160/MT after a correction in late December, could continue to support the Aussie as the global reflationary narrative appears to be consolidating after the Democrats gained control of the US Senate.   

The China-Australia trade dispute has been countered by the intense Chinese buying of iron ore, offsetting the bans on coal and duties on other Australian exports.