AUD/USD. Price Analysis. Forecast. The AUD/USD Pair Rises Amid Growing Australian Bond Yields and Weakening US Dollar

Ben Graham · January 27

As of Tuesday, at the time of writing, the AUD/USD pair is approaching the round 0.7000 level, up 0.70% for the day. The pair continues to be supported by a combination of strong internal fundamental factors in Australia and the ongoing weakness of the US dollar.

The Australian dollar is confidently supported by rising domestic bond yields. The yield on 3-year Australian bonds has climbed to 4.27%—the highest level since November 2023—which reflects market confidence in the country's credit outlook. If necessary, the Reserve Bank of Australia (RBA) will continue to maintain a restrictive monetary policy. Recent economic indicators, such as stable employment data and the Purchasing Managers' Index (PMI), contribute to an overall trend toward disinflation, reinforcing the central bank's hawkish forecasts.

To clarify the RBA's policy trajectory, it would be prudent to await the publication of new Australian inflation data. Although inflation has significantly retreated from its 2022 highs, it still exceeds the target range of 2-3%, prompting the bank's leadership to avoid premature signals of easing.

In contrast, the US dollar continues its decline amid political and institutional uncertainty, undermining investor confidence.

The risks of a partial US government shutdown, coupled with discussions about future leadership and the Federal Reserve's independence, are increasing selling pressure on the dollar. Recent labor market reports in the US signal a slowdown in hiring rates, raising the likelihood of a more dovish stance from the Fed by the end of the year.

This stimulates capital outflows from the US dollar into G10 currencies, including the Australian dollar, which stands out for its higher yields and the resilience of its domestic fundamentals. As long as Australian bonds demonstrate attractive yields and the US dollar faces pressure from political and monetary risks, the AUD/USD pair is likely to remain stable and hold near three-year highs.

From a technical perspective, although oscillators are in overbought territory, they are trending upward, and all moving averages are also pointing higher, confirming the continuation of the exchange rate's growth.

On Tuesday, the Australian dollar has shown the greatest strength against the US dollar among major currencies.