AUD/USD - Risk reversals hit 3-week low, yield differential at 4-month low

• Declining risk reversals indicate a bearish bias in the market
• 10Y Aussie-US yield spread falls to 4-month low in AUD-negative manner

Risk reversals

• The one-month 25 delta risk reversals gauge fell to -0.775 on Monday;  the lowest level since Oct. 10. The decline from the current month of -0.625 indicates increased demand for AUD Put options (bearish bets).

Meanwhile, the deteriorating 10Y Aussie-US government bond yield spread adds credence to the bearish bias seen in the options market.

Yield differential

• The yield differential currently stands at a 16-week low of 31.8 basis points. The spread had widened to 60.7 basis points (yearly high) on Aug. 31.

Both risk reversals and the yield differential indicates that the technical recovery in the AUD/USD (from 0.7625 to 0.77) could be shortlived.