Forex Market: AUD/USD rebounds as greenback pauses four-day advance, triggered by higher bond yields

Following a steep drop a day earlier, AUD/USD traded higher on Tuesday, as the greenback paused a four-day advance, triggered by rising US bond yields.

Expected to take office on January 20th, President-elect Joe Biden has promised “trillions” in additional coronavirus relief spending, which pressured government bonds and drove bond yields higher.

The yield on benchmark 10-year US bonds exceeded 1% for the first time since March 2020.

Support from higher bond yields has so far outweighed concerns that additional spending would lead to higher debt and accelerate inflation.

Meanwhile, currency traders mostly ignored a Democratic push to impeach US President Donald Trump after the siege of the Capitol last week.

“We do not expect U.S. political theatre to be a major driver of the USD,” Commonwealth Bank of Australia currency analyst Joe Capurso wrote in an investor note, cited by Reuters.

“Market participants are looking to the policies of the Biden presidency rather than the dying days of the Trump presidency. Given the USD is modestly overvalued, we expect the recent lift in the USD to be limited.”

Prior to recent weakness against its US counterpart, the Aussie dollar has drawn support from rising commodity prices and an economic recovery in Australia, driven by a successful containment of the pandemic there.

Yet, according to Commonwealth Bank of Australia analysts, AUD/USD still looked well placed to climb as high as 0.8000 in the longer term.

As of 9:48 GMT on Tuesday AUD/USD was gaining 0.53% to trade at 0.7737, while moving within a daily range of 0.7687-0.7741. The major pair has risen 0.48% so far in January, following another 4.89% surge in December, or the biggest monthly gain since April 2020.

In terms of US macroeconomic data, today market players will be paying attention to the November report on job openings due out at 17:00 GMT.

Additionally, several Federal Reserve officials are expected to make speeches.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled -5.1 basis points (-0.051%) as of 9:15 GMT on Tuesday, down from -4.9 basis points on January 11th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7708
R1 – 0.7749
R2 – 0.7802
R3 – 0.7843
R4 – 0.7884

S1 – 0.7654
S2 – 0.7613
S3 – 0.7560
S4 – 0.7507