Risk Appetite Refuses to Let Go: AUD/USD Supported Despite Stronger Dollar

The AUD/USD pair has been supported by risk appetite since the recent hawkish Fed meeting, despite the accompanying strength in the US dollar. This is due to the correlation between the pair and global equities, which remains strong over longer periods.

The relationship with Aussie-US two-year yield spreads weakens noticeably as the tail effect from the Fed fades, but the correlation with global equities remains consistent. The tech-led equity gains continue to support the Aussie dollar, while FX volatility remains subdued.

However, one risk to this view is USD/JPY, which has pushed sharply higher over the past 12 hours and may trigger Japanese authorities to intervene. Any intervention episode would likely weigh on the US dollar, but could also offset some of the benefit from a weaker greenback if it weighs on the Nikkei and broader risk appetite.