Yields are screaming. How does that affect AUD/CAD?

Yields around the world are on the rise. In some places, such as emerging market countries, yields are rising more rapidly than in others. In the US, yields are playing catch up as the 2-year yield crossed 1% for the first time since February 2020, before the coronavirus took over the world. In the 10-year bond, yields reached a high of 1.866% on Tuesday. This is the benchmark’s yields highest level since January 9^th, 2020 when it reached a high of 1.9%. However, in doing so, the 10-year yield broke above some key resistance:

The 2021 high at 1.774%
The 200 Weekly Moving Average at 1.783%
The 50% Fibonacci retracement level from the highs of November 2018 to the lows of March 2020, near 1.83%.

On a weekly timeframe, the next level of resistance isn’t until the November 4^th, 2019 high at 1.968% and then the big, round number resistance level of 2%. Support is back at the 200 Week Moving Average and the 2021 highs mentioned above.

Source: Tradingview, Stone X

What does that have to do with AUD/CAD? On a daily timeframe, AUD/CAD currently has a strong negative correlation with US 10-year yields. The correlation coefficient is currently -0.93. Any correlation above +0.80 or below -0.80 is considered strong. A reading of -1.00 is a prefect negative correlation, meaning the 2 assets move in opposite directions 100% of the time. A reading of -0.93 is pretty close! Just as US 10-year yields have broken above the 50% retracement from the February 2020 low to the January 2021 high, AUD/CAD has broken below its 50% retracement level from February 2020 high to the February 2021 low. In addition, the pair has now traded within pips of its December 2021 lows. However, notice the RSI is diverging with price, an indication the pair may be ready for a bounce. Will AUD/CAD continue lower?

Source: Tradingview, Stone X

Coincidentally, on a 240-minute timeframe, the correlation coefficient between US 10-year yields and AUD/CAD is also -0.93! Therefore, on the short-term timeframe, the negative correlation is strong as well. This means that If yields continue higher, AUD/CAD should continue lower. A break of the 0.8972 level could usher in stops losses. Support isn’t until the 61.8% Fibonacci retracement level from the previously mentioned timeframe at 0.8810 (see daily). Horizontal resistance above is at 0.9037, 0.9100, and 0.9159. If US 10-yer yields move lower and/or prices bounce with the RSI on the daily, AUD/CAD could pause at any of those levels.

Source: Tradingview, Stone X

US 10-year yields continue to make new highs. These yields have a strong negative correlation with AUD/CAD. Therefore, if yields continue higher, AUD/CAD should continue lower.

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.