Forex Market: AUD/USD hits a six-week high as risk sentiment improves, Australian economy expected to rebound in Q4

AUD/USD hit highs not seen since early September on Tuesday amid improved risk sentiment as Asian shares tracked US tech equities higher as well as on indications China’s property market woes will probably be contained.

The risk-sensitive Aussie dollar surged even as the minutes from Reserve Bank of Australia’s October policy meeting showed the central bank still did not expect a rate hike until 2024.

The minutes stated that the Delta variant outbreak had disrupted economic recovery in Australia, as the available macro data indicated a material drop in GDP during the third quarter.

However, the setback will probably be only temporary as the vaccination campaign progresses and restrictive measures are relaxed, while the economy is expected to return to growth during the fourth quarter and to its pre-Delta path during the second half of 2022.

Still, RBA policy makers agreed that while less accommodative monetary conditions would result in lower housing prices and credit growth, they would also lead to fewer jobs and slower wages growth.

“We would expect the RBA to step in and defend its YCC target, possibly this week,” Su-Lin Ong, head of Australian fixed income strategy at RBC Capital Markets, was quoted as saying by Reuters, as she referred to the bank’s yield curve control policy to keep three-year bond yields at 0.10%.

“Should it not step in … it would be hard not to conclude that there is some emerging shift in the RBA’s policy stance,” Ong said.

Meanwhile, 3-year Australian bond yields were mostly steady at 0.77%, while 10-year bond yields were unchanged at 1.74%.

As of 8:32 GMT on Tuesday AUD/USD was gaining 0.79% to trade at 0.7467, after earlier touching an intraday high of 0.7476. The latter has been the Forex pair’s strongest level since September 3rd (0.7478). The major currency pair has gained 3.31% so far in October, following a 1.19% loss in September.

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 -26.13 basis points (-0.2613%) as of 8:15 GMT on Tuesday, down from -26.1 basis points on October 18th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7408
R1 – 0.7438
R2 – 0.7467
R3 – 0.7497
R4 – 0.7526

S1 – 0.7379
S2 – 0.7350
S3 – 0.7321
S4 – 0.7292