Forex Market: AUD/USD edges higher as risk sentiment recovers, US Dollar Index hits a 20-week high as Treasury yields surge

AUD/USD traded a notch higher on Tuesday, as investor risk sentiment seemed to have recovered in Asia and Europe after US shares trimmed losses triggered by a hedge fund default.

The Australian currency also largely ignored a drop in prices of iron ore and crude oil on Tuesday, with shipping traffic through the Suez Canal now resumed.

According to Commonwealth Bank analysts, the Australian Dollar remains “undervalued relative to commodity prices.”

Meanwhile, against a basket of six major peers, the US Dollar hit highs unseen since November 11th 2020, supported by a surge in US Treasury yields and as market players were concerned about the potential fallout from the collapse of the Archegos Capital hedge fund. Yet, those concerns seemed to have eased as the Asian trading session got underway.

The US Dollar Index was gaining 0.19% on the day to 93.12, after earlier touching 93.17.

The yield on US 10-year government bonds went up as high as 1.7450% in Asia, en route to 1.7540%, a 14-month high hit earlier in March.

As of 8:57 GMT on Tuesday AUD/USD was edging up 0.11% to trade at 0.7636, after earlier touching an intraday high of 0.7664, or its strongest level since March 23rd (0.7747). The currency pair has retreated 0.90% so far in March, following a 0.88% surge in February.

In terms of economic calendar, several Federal Reserve officials are scheduled to make speeches later on Tuesday.

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 -8.2 basis points (-0.082%) as of 8:15 GMT on Tuesday, down from -6.0 basis points on March 29th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7633
R1 – 0.7651
R2 – 0.7673
R3 – 0.7691
R4 – 0.7709

S1 – 0.7610
S2 – 0.7592
S3 – 0.7569
S4 – 0.7547