Australian Dollar Dips as US Dollar Rallies After Israel Attack. Lower AUD/USD?

australian dollar, Australian dollar/US dollarBank of Japan, RBA, FRB, government bond yields, ACGB, JGB – Issues

• The Australian dollar lost its footing heading into Monday’s trading.
• News of riots erupting in the Middle East is spooking markets
• government bond yield and USD It’s growing higher. Will it depreciate the Australian dollar?USD?

The Australian dollar fell on Monday morning following news over the weekend of an all-out attack on Israel by the terrorist group Hamas, opening the stage for a new war.

The US dollar was strong across the board earlier this week, but particularly against growth and risk-sensitive currencies such as Australia and the Kiwi. The Japanese yen and Swiss franc have maintained their haven status and are faring better.

Futures markets are pointing toward lower stock prices in Asia, Europe, and North America later today. This day is a public holiday in Japan and the United States, which could reduce liquidity and therefore make market conditions more volatile than they would otherwise be.

The U.S. dollar was already supported by continued rise in U.S. Treasury yields, following Friday’s solid jobs report that showed payrolls rose by 336,000 in September.

The benchmark 10-year bond rose above 4.88% on Friday, the highest return for a low-risk asset since 2007. After that, it stabilized at around 4.80%.

By comparison, the Australian Commonwealth Government Bond (ACGB) yield fell below 4.50% today after jumping to 4.70% last week.

Government bond spreads have historically fluctuated in their correlation to the AUD/USD, but the movement that started this week is moving aggressively in favor of the USD.

AUD/USD, 3-year and 10-year Australian-US bond spreads

Chart created with TradingView

Gold, silver and crude oil futures prices started higher due to a combination of safe-haven buying in precious metals, potential supply constraints and increased energy demand.

At the time of printing, most other commodity futures have not yet begun trading, which could lead to excessive volatility if risk aversion is the theme for the upcoming trading session.

AUD/USD technical analysis

AUD/USD refused to move below the downtrend line last week, but remains in an overall downtrend channel.

The pair briefly broke above the historic breakpoint of 0.6387 on Friday, but could not sustain this move and may continue to face resistance.

This peak at 0.6400 coincides with the 21-day simple moving average (SMA), and that level could provide resistance ahead of the 34-day SMA, which is currently near 0.6412.

Australia’s failure to break above these SMAs may suggest that bearish momentum is intact for now. Movements above the 21-day and 34-day SMAs may indicate more sideways price movement.

The 0.6500 – 0.6520 region contains a series of previous peaks and could be a notable resistance zone. Further up, the 0.6600 – 0.6620 area could become another resistance zone with some breakpoints and previous highs.

On the downside, support is likely near the previous lows of 0.6285, 0.6270, and 0.6170.

The latter may also find support at the 161.8% Fibonacci extension level of 0.6186. If you would like to learn more about the Fibonacci method, please click on the banner below.

Chart created with TradingView

— Written by Daniel McCarthy, DailyFX.com Strategist

Please contact Daniel. @DanMicCarthyFX on Twitter