AUD/USD: focus is on the 10-year yield differential

• The Aussie dollar's recovery rally is falling apart as the 10-year yield differential is rising again in the USD-positive manner.
• The yield differential may revisit recent highs if the Fed policymakers, scheduled to speak this week, call for above-neutral interest rates.

The Aussie dollar is closely following the action in the spread between the US 10-year treasury yield and its Australian counterpart.

The spread topped out at 54 basis points on Oct. 31. Interestingly, the AUD picked up a strong bid on the following day and rose above 0.73 on Nov. 16. During the same time frame, the spread fell back to 35 basis points.

Further, the currency pair dived out of the rising trendline on Nov. 20, signaling the end of the corrective rally, as the spread began to rise again in favor of the USD. Notably, the spread has increased by eight basis points in the last seven days and could rise even further, pushing the AUD/USD lower, if the Fed officials reaffirm the gradual path of tightening and drop hints of an above-neutral interest rate policy.

Fed policymakers - Bostic, Evans, and George - are scheduled to speak today. Fed Chair Powell will take the center stage tomorrow, followed by the Fed minutes on Thursday.

AUD/USD Technical Levels