Australian Dollar Slides as US Yields Surge Past 5% Threshold
The Australian dollar slid more than 1% against the US dollar on Wednesday as US Treasury yields surged higher, pushing past the 5% threshold for the first time since 2007.
The AUD/USD rate fell to around 0.7039-0.7041 from an earlier peak of 0.7118, while the US 5-year yield rose 17 basis points to 4.99% and the 10-year yield added 15.5 basis points to 5.11%. The US Dollar Index (DXY) also gained 0.57% to 101.25.
The move in rates came alongside strong US data, with the S&P Global Manufacturing PMI rising to 57 from 53.9 and the Services PMI increasing to 58.7 from 56.5. Market pricing for a 25 bps Fed rate hike in October increased to 66% from about 52%, while December odds reached 93%, according to Prime Terminal.
Derivative traders are advised to position for further downward pressure on the AUD/USD, with the US Treasury yields firmly above the crucial 5% threshold. Purchasing short-term put options on the Aussie dollar is a highly attractive play, allowing traders to capitalize on the widening yield spread between the US and Australia while keeping risk capital protected.