AUD/USD better bid as 10Y yield spread avoids inversion, China PMI beats estimates

• AUD/USD retakes 0.79. 
• The 10Y AU-US yield spread rises to 4 basis points.
• Focus on RBA.

AUD/USD has defended the support at 0.7893 (38.2% Fib R of Dec-Jan rally), but the narrowing 10-year AU-US yield spread indicates the rebound to 0.7930 could be transient.

As of writing, the spread between the Aussie 10-year government bond yield and the US 10-year treasury yield is 4 basis points. The spread has dropped sharply in the AUD negative manner in the last few months and witnessed inversion (turned negative) after the release of the strong US labor data on Friday.

However, the Aussie 10-year yield jumped more than 8 basis points today, thus pushing the spread back into the positive territory. That seems to have put a bid under the Aussie.

Also, China January services PMI came in at 54.7, beating the estimate of 53.5. The better-than-expected print is also helping the AUD regain poise. 

That said, the prospects of further widening of the AU-US yield spread in the AUD positive manner and the sustainability of the rebound from 0.7893 depends on RBA's commentary on labor markets, inflation, and the exchange rate. The central bank rate decision is due tomorrow at 03:30 GMT.

AUD/USD Technical Levels

As of writing, the spot is trading at a session high of 0.7930. A break above 0.7956 (Jan. 23 low) would open up upside towards 0.7798 (5-day MA) and 0.8031 (10-day MA). On the other hand, a break below 0.7893 (38.2% Fib R of Dec-Jan rally) could yield 0.7875 (Jan. 5 high) and 0.7848 (Jan. 12 low).