AUD/USD hit fresh multi-week highs above 0.7730 but reversed sharply lower later in the later US session as global bond yields surged unexpectedly higher. AUD/USD crashed back through 0.7700 all the way to 0.7635 as the bond market turmoil made its biggest impact against the high yielding currencies.
The catalyst for the global bond yield rally was disappointment from the ECB meeting overnight as they failed to extend the current QE program beyond March 2017. The European Bond yields which are mostly negative saw gains of 5-7bps which is a very large move for a single day and this overflowed to global bond Yields with US 2YR yields up from 0.73% to 0.77%.
Also helping bond yield rally was the continued rally in Oil which is overflowing into inflation expectations. Oil moved up to $48.00 before settling down at $47.50 after the biggest drop in the Crude Oil inventories since 1999 with a draw of 15mil barrels last week. Now most of the record drop is on the back of oil production disruptions from storms in the Gulf but the lack of supply is real and will help the Oil price short term at least.
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