AUD/USD: Smoked As Aus Yields Fall Sharply

To understand the brutal mark-down in the Aussie in the last 24h, one must resort to the re-anchoring of the correlation between the currency pair and its yield spread as investors finally pay much closer attention to domestic factors in the Australian economy. This newly found correlation with the AU vs US bond yield spread has been running on a factor above 0.75/0.80 for most of the week. As of Feb 7th in the Asian session, the spread keeps widening in favour of the US, which should act as an underpinning element to keep the sell-side pressure well and alive. To top it off, the Aussie has found even further sell-side pressure from the rude strength in the DXY, as the magenta line depicts (it also includes the Chinese Yuan factored in). The next level of key support for the Aussie can be found circa 0.7075–0.7080 ahead of 0.7050 (demand imbalance Jan 7th).