Australian dollar slammed after U.S. bond yields surge higher

The Australian dollar was slammed overnight after U.S. bond yields surged higher. This could be good news for Appen Ltd (ASX:APX), Aristocrat Leisure Limited (ASX:ALL), and Treasury Wine Estates Ltd (ASX:TWE) shares…

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Australian dollar was slammed during overnight trade after the release of positive economic data in the United States led to the greenback strengthening.

At the time of writing the Australian dollar is fetching 71 U.S. cents, down 1.2% over the last 24 hours from 71.9 U.S. cents.

What happened?

According to CNBC, Institute for Supply Management data revealed that the U.S. services sector expanded in September at its fastest pace on record.

The ISM non-manufacturing index rose to 61.6 last month, its highest level since the index was created in 2008. Whereas economists had been expecting the index to hit 58.

In addition to this, data provided by ADP and Moody's Analytics revealed that private companies added 230,000 more positions in September, up from 168,000 additions in August.

This strong economic data led to an uptick in bond yields and the strengthening of the U.S. dollar.

The yield on the 10-year Treasury note hit its highest level since July 2011 and the yield on the 30-year Treasury bond hit its highest level since October 2014.

What now?

If U.S. economic data continues to be positive over the next 12 months and supports wage growth and inflation, I suspect it could put pressure on the U.S. Federal Reserve to hike rates at a quicker than expected pace.

And with the Reserve Bank of Australia likely to keep the cash rate on hold for the whole of next year, the Australian dollar could come under further pressure.

How to profit.

If this happens it would be great news for companies that generate sizeable revenues in U.S. dollars, as they are likely to benefit from the favourable currency movements.

In light of this, I wouldn't be surprised to see the likes of Appen Ltd (ASX: APX), Aristocrat Leisure Limited (ASX: ALL), and Treasury Wine Estates Ltd (ASX: TWE) push higher today on the back of this news. I think all three of these shares could be great long-term buy and hold investments, but even more so if the local currency drifts below the 70 U.S. cents mark.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended Treasury Wine Estates Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

A diverse group of people form a circle at a park and raise their arms together.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors pulled back from the market's record highs this Thursday.

Read more »

A few gold nullets sit on an old-fashioned gold scale, representing ASX gold shares.
Broker Notes

This ASX 200 gold stock could shine bright, says top broker

Poised to soar?

Read more »

Three miners looking at a tablet.
Resources Shares

3 ASX mining shares to sell today: experts

These iron ore, coal, and lithium miners have attracted sell ratings from brokers.

Read more »

Five different piggy banks, indicating a diverse share portfolio.
Bank Shares

Investing in ASX 200 banks: Which macroeconomic variables matter according to Macquarie

The majority of absolute bank performance can be explained by four key factors.

Read more »

Happy miner giving ok sign in front of a mine.
Broker Notes

Macquarie forecasts 40% upside for this ASX mining stock

Ready to rock.

Read more »

a young woman raises her hands in joyful celebration as she sits at her computer in a home environment.
Share Gainers

Why DroneShield, EOS, Larvotto, and Life360 shares are racing higher today

These shares are having a strong session. But why?

Read more »

A man holds his head in his hands after seeing bad news on his laptop screen.
Share Fallers

Why Beach Energy, Cettire, Flight Centre, and Pilbara Minerals shares are sinking today

These shares are having a tough time on Thursday. But why?

Read more »

Red arrow going downwards in front of oil pumpjacks.
Energy Shares

Why did this $2.7 billion ASX 200 energy share just crash 11%?

Investors are fleeing the ASX 200 energy stock today. But why?

Read more »