- AUD/USD consolidates weekly losses amid a quiet session and light calendar.
- Treasury yields rebound, USD retreats even as recession fears probe optimists.
- Australian yields brace for biggest drop in a decade as hawkish RBA lures bond buyers.
- RBA’s Lowe is expected to repeat his build at higher rates to defend the Aussie bulls.
AUD/USD drools around 0.6900, marking the first daily performance in three, as risk aversion ebbs early Friday morning in Europe. A light calendar and a lack of major macro negatives appear to have supported the Australian pair’s latest corrective pullback ahead of Reserve Bank of Australia (RBA) Governor Philip Lowe’s scheduled speech.
US 10-year Treasury yields are rebounding from a two-week low hit the previous day as traders wait for more clues to confirm the economic slowdown. Even so, bond coupons are bracing for the first in four weekly losses while reversing from the highest levels since 2011 at 3.09% at press time.
Domestically, Australian 10-year Treasury bond yields extend their pullback from the highest levels since 2014 despite daily gains of 1.0% around 3.71%. More importantly, the 3-year counterpart is eyeing the biggest weekly loss since 2011 with a drop of more than 11% to 3.31% at press time.
It should be noted that the 0.50% intraday gains in the S&P 500 Futures also depict the market‘s cautious optimism, or at least the consolidation of the latest pessimism, early Friday.
Amid these plays, the US Dollar Index (DXY) drops 0.15% intraday to 104.25 at the latest, which in turn gives Commodities and Down Under a chance to lick their wounds.
While a break in risky sentiment and a weaker dollar sparked the rebound in the Australian pair, headlines suggesting improving traffic in China are bolstering recovery moves. Even so, a cautious mood ahead of a speech from RBA’s Lowe is testing the bulls.
That said, weak US PMIs and Fed Chairman Jerome Powell’s willingness for further rate hikes, as well as economic growth fears, appeared to have weighed on AUD/USD prices the day before. In doing so, the Aussie bears ignored the upbeat S&P global PMI for Australia.
Going forward, AUD/USD prices should remain firmer as the RBA’s Lowe might not want to ruin his reputation by stepping back from the latest comments suggesting further rate hikes. It is also important for pair traders to watch US new home sales for the month of May. Above all, updates regarding central bank moves and the recession will be important to watch for clear guidance.
AUD/USD rally needs validation from a falling resistance line from June 7th at 0.6930 at press time. However, sellers are likely to stay on the sidelines until they see a break down of the 6-week-old support line around 0.6855-60 at the latest.