Australian Dollar underperforms as rallying US Treasury Yields prompt risk-off mood

The Australian Dollar (AUD) is down against its major currency peers, trading 0.45% lower to near 0.6890 against the US Dollar (USD) during the European trading session on Wednesday. The antipodean faces intense selling pressure as the market sentiment turns risk-averse due to surging United States (US) Treasury Yields.

At press time, 10-year US Treasury Yields are 0.18% higher to near 4.47%, extending the advance even after a 2% surge on Tuesday. S&P 500 futures trade 0.4% lower to near 7,470, reflecting a risk-off market mood. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.15% higher to near 101.33.

Signs of improving US labor demand have boosted US bond yields. The US JOLTS Job Openings data for May showed on Tuesday that employers posted 7.594 million fresh jobs, higher than 7.3 million estimates and the previous reading of 7.585 million.

On the domestic front, easing hopes of another Reserve Bank of Australia (RBA) interest rate hike is also hurting the Australian Dollar. According to a Reuters report, there is now a 15% chance of a rise in the 4.35% cash rate at the next meeting from the RBA in August, and a 50% probability it is done hiking for this cycle.

Hawkish RBA prospects have cooled down as the return of oil prices close to pre-Middle East war levels has anchored global inflation expectations.

Earlier in the day, China's RatingDog Manufacturing Purchasing Managers' Index (PMI) arrived at 51.7 in June, as expected, marginally lower from 51.8 in May. Given that the Australian economy relies heavily on its exports to China, Beijing’s factory data impacts the Australian Dollar significantly.