Weaker Yield Spread Makes AUDUSD Bounce Compelling


On Tuesday 7 December the Reserve Bank of Australia kept is cash rate at 0.10%, in line with the consensus forecast. The statement suggests that inflation generation is still a concern for the central bank, "…inflation has picked up, [but] it remains low in underlying terms. Inflation pressures are also less than … many other countries… because of…modest wages growth in Australia." Thus, a key determinant on monetary policy is wage inflation, and in this regard the RBA "is prepared to be patient." Since the release (blue dashed vertical), the yield spread between the Aussie 10 Yr. and the US 10 Yr. has declined. The spread's stochastic has also dropped towards the bearish side of the indicator (blue arrow). The longer the stochastic maintains this position, the higher the chance of further spread decline.

Source: www.tradingview.com

Past Performance: Past Performance is not an indicator of future results.

The chart below on the left shows the AUDUSD H4 time frame. We have included heiken ashi candles, which are trend-following. The AUDUSD has had a terrific run since 6 December, but has reacted off of overhead resistance (blue shaded horizontal). The heiken ashi has also turned red, which suggest weakness. The right chart shows the H1 timeframe. Here, the hourly stochastic has dropped below 20 (aqua arrow). If it holds this position, downwards momentum will be building. The hourly trend-following indicators have converged on one another (aqua ellipse). If these cross positively, the H4 chart is likely to have another go at its overhead resistance. However, given the decline in yields, if the EMAs resume a south easterly direction, accompanied with the low stochastic, price is likely to be under pressure.


Past Performance: Past Performance is not an indicator of future results.

Featured Image by Patty Jansen from Pixabay

Trade the News: View our Economic Calendar

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.


Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.

Spreads Widget: When static spreads are displayed, the figures reflect a time-stamped snapshot as of when the market closes. Spreads are variable and are subject to delay. Single Share prices are subject to a 15 minute delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information.

${getInstrumentData.name} / ${getInstrumentData.ticker} /

Exchange: ${getInstrumentData.exchange}

${getInstrumentData.bid} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}