Australian DollarAustralian interest rates

Australian dollar hollowed out as yield spread keeps crashing

David Llewellyn-Smith
Wednesday 29 March 2017
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New narrows today for the carry trade into Aussie dollars as the yield spread on the two year bond hit 45bps overnight, it’s narrowest since April 2001:

The last time the spread was this narrow, the Aussie dollar was trading at 49 cents. There are many variables at work but it gives you some notion of why the currency is now trading tick for tick with the iron ore price which is holding it up.

We can represent this in the spread between the terms of trade and trade-weighted index which is unusually narrow today, hinting at high correlation:

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.