AUD/USD: Uptick stalls amid a decline in the AU-US bond yield spread

• AUD/USD is better bid, but struggling to extend gains beyond 0.6575. 
• The AU-US yield spread drops for the fourth straight day. 
• RBA, however, remains a relatively less dovish bank compared to the Fed. 

The upward move in the AUD/USD pair looks to have stalled amid a decline in the Aussie and US government bond yield differential. 

The currency pair is currently trading near 0.6565, representing a 0.35% gain on the day, having faced rejections near 0.6575 over the last two hours. While the exact reason for the bull failure is not known, the narrowing of the bond yield spread may have played a role. 

The spread between the 10-year Aussie and US government bond yields is currently seen at 20 basis points – down two basis points on the day. The spread has come under pressure for the fourth straight day and has pretty much erased the rise from 20 basis points to 30 basis points seen on May 19. Moreover, the yield spread has been hovering in the range of 33 to 18 basis points since the end of April, having bottomed out around -70 basis points in February. 

While the widening of the yield spread in the AUD-positive manner looks to have stalled, the AUD could still continue to gain altitude, as the Reserve Bank of Australia’s (RBA) monetary policy stance is relatively less dovish than the Federal Reserve. 

The RBA has recently tapered its bond purchases as the three-year yield seems to have stabilized near the target rate of 0.25%. On the other hand, the Fed is expanding its balance sheet at an unprecedented rate. 

Further, the US equity market rally is showing no signs of slowdown down and could keep the growth-linked AUD better bid. 

Technical levels