AUD/USD Hammered Lower as US Yields and RBA Repricing Combine

The AUD/USD has been hammered lower this week due to an unwind in hawkish RBA pricing and softer economic data. The US dollar has continued to feed on higher Treasury yields, sending the pair to fresh multi-month lows.

US front-end yields have posted historically large September increases, with two-year and five-year yields rising by 54 and 60 basis points respectively. This has narrowed Australia's yield advantage over the US dollar.

The RBA hiked interest rates by 25 basis points earlier this week, but the tone of Governor Michele Bullock's press conference was not as hawkish as markets had anticipated. Expectations for a back-to-back rate increase in November have been pared back sharply.

A cautionary message is emerging that the risk-reward of chasing lower levels in AUD/USD may be becoming less attractive, with history suggesting sustained moves of this length are rare. US yield streaks are entering rare territory, and if the hawkish move at the front end of the US curve begins to fade, one of the key forces underpinning the dollar's rally may lose some potency.