AUD/USD Intermarket: Focus on AU-US 10-yr yield spread, commodity prices

AUD/USD has rallied from December 23 low of 0.7160 to a high of 0.7609 (Jan 24 high). During the same time period, the AU-US 10-year bond yield spread has remained largely around 0.34 levels. 

The spread briefly widened to 0.37 on January 19 and has dropped today to 0.30 levels. 

AUD at the mercy of commodity prices

The fact that the yield spread remained largely flat lined throughout the last one month clearly suggests the Aussie dollar simply tracked iron ore, gold and copper prices higher. 

The currency is thus exposed to a drop in the commodity prices…Furthermore, the yield spread may narrow in favor of the USD given the dismal Aussie CPI release has increased the odds of RBA rate cut.