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AUD/USD faces downward pressure: Risk aversion and RBA's rate decisions impact

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Explore the factors behind the AUD/USD's third consecutive week of decline, including risk aversion selling, RBA's rate decisions, and the influence of global bond market dynamics.


Source: Bloomberg


 Tony Sycamore | Market Analyst, Australia | Publication date: Monday 07 August 2023 08:19

    Last week, the AUD/USD closed lower for a third consecutive week due to risk aversion selling and following the RBA's decision to keep rates on hold at 4.10%.

    Impact of global events on AUD/USD

    The risk aversion selling was triggered by a significant rise in yields on the typically stable US 30 bond during the week. The US Treasury's unexpected announcement of larger sizes for upcoming auctions caught the market off guard, leading to bond market malaise. This was further exacerbated by spillover effects from the BoJ's meeting, which saw a slight adjustment to YCC, and the Fitch downgrade of the US credit rating.

    We firmly believe that it is not just the direction of yields that influences cross-asset volatility, but rather the speed of the movement that causes dislocation.

    Hence, market participants will closely monitor this week's quarterly auctions of 10-year notes and 30-year bonds to gauge the level of demand. Any signs of bond market indigestion may quickly impact other risk assets, including the AUD/USD.

    Domestic factors influencing AUD/USD

    On the domestic front, key events influencing the AUD/USD will be Tuesday's consumer and business confidence surveys. With the RBA's decision to hold rates and lower inflation, we expect consumer sentiment to rebound towards 85 from the previous 81.3. Meanwhile, the NAB Business Confidence index is likely to see a slight decline from 0 to -1.

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