Yields are screaming. How does that affect AUD/CAD?
Yields around the world are on the rise. In some places, such as emerging market countries, yields are rising more rapidly than in others. In the US, yields are playing catch up as the 2-year yield crossed 1% for the first time since February 2020, before the coronavirus took over the world. In the 10-year bond, yields reached a high of 1.866% on Tuesday. This is the benchmark’s yields highest level since January 9th, 2020 when it reached a high of 1.9%. However, in doing so, the 10-year yield broke above some key resistance:
- The 2021 high at 1.774%
- The 200 Weekly Moving Average at 1.783%
- The 50% Fibonacci retracement level from the highs of November 2018 to the lows of March 2020, near 1.83%.
On a weekly timeframe, the next level of resistance isn’t until the November 4th, 2019 high at 1.968% and then the big, round number resistance level of 2%. Support is back at the 200 Week Moving Average and the 2021 highs mentioned above.
Source: Tradingview, Stone X
What does that have to do with AUD/CAD? On a daily timeframe, AUD/CAD currently has a strong negative correlation with US 10-year yields. The correlation coefficient is currently -0.93. Any correlation above +0.80 or below -0.80 is considered strong. A reading of -1.00 is a prefect negative correlation, meaning the 2 assets move in opposite directions 100% of the time. A reading of -0.93 is pretty close! Just as US 10-year yields have broken above the 50% retracement from the February 2020 low to the January 2021 high, AUD/CAD has broken below its 50% retracement level from February 2020 high to the February 2021 low. In addition, the pair has now traded within pips of its December 2021 lows. However, notice the RSI is diverging with price, an indication the pair may be ready for a bounce. Will AUD/CAD continue lower?
Source: Tradingview, Stone X
Trade AUD/CAD now: Login or Open a new account!
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Coincidentally, on a 240-minute timeframe, the correlation coefficient between US 10-year yields and AUD/CAD is also -0.93! Therefore, on the short-term timeframe, the negative correlation is strong as well. This means that If yields continue higher, AUD/CAD should continue lower. A break of the 0.8972 level could usher in stops losses. Support isn’t until the 61.8% Fibonacci retracement level from the previously mentioned timeframe at 0.8810 (see daily). Horizontal resistance above is at 0.9037, 0.9100, and 0.9159. If US 10-yer yields move lower and/or prices bounce with the RSI on the daily, AUD/CAD could pause at any of those levels.
Source: Tradingview, Stone X
US 10-year yields continue to make new highs. These yields have a strong negative correlation with AUD/CAD. Therefore, if yields continue higher, AUD/CAD should continue lower.
Learn more about forex trading opportunities.
From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.
City Index is a trading name of StoneX Financial Pty Ltd.
The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.
While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.
StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.
It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.
StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.
© City Index 2024