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

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.

And here's an exciting small cap share that could be a big winner from a weaker Australian dollar.

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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.

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