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Stock markets are falling amidst rising bond yields, creating a typically difficult global context for the Australian Dollar.

The Australian Dollar was amongst the worst performing major currencies on a day U.S. ten-year bond yields spiked to their highest levels since January 2020 and sent the majority of the world's major stock markets slumped into the red.

The 'high beta' Australian Dollar has a close correlation to risk sentiment, rising when markets move higher but falling when they sell-off.

The Pound to Australian Dollar exchange rate rose a quarter of a percent to trade at 1.8970 while the Australian Dollar to U.S. Dollar exchange rate fell a third of a percent to trade at 0.7187.

"Markets apparently turned lower on rising bond yields," says Neil Wilson, Chief Analyst at Markets.com. "The key thing to watch today as US traders return to their desks following the MLK holiday is whether the rout in bonds continues, or moderates."

Above: GBP/AUD (top) and AUD/USD (bottom) since 2021.

GBP/AUD reference rates at publication:

Spot: 1.8967High street bank rates (indicative band): 1.8303-1.8436Payment specialist rates (indicative band): 1.8796-1.8872Find out about specialist rates, hereSet up an exchange rate alert, hereShould U.S. bond yields continue to press higher then the cost of financing dollar-denominated debt across the world will continue to rise, creating headwinds to a global economic recovery.

Australia's main foreign currency earner is its basket of commodities, dominated by iron ore, and when global growth slows so too does demand for its exports.

As long as yields continue to rise then the Aussie Dollar could remain under pressure.

Driving yields higher are expectations for a combination of interest rate hikes and quantitative tightening at the U.S. Federal Reserve in 2022 and 2023.

Above: The yield paid on U.S. ten-year treasury bonds continues a steady march higher, signalling the end of pandemic-era 'easy money'.

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The U.S. is currently witnessing inflation levels unseen since 1982, piling pressure on the Fed to lift interest rates and reduce its easy monetary policy.

"We can expect lurches and retracements as markets adjust to the dynamics of inflation and Fed policy expectations," says Wilson.

As investors anticipate the withdrawal of 'easy money' over coming months and years it is those sectors of the market that benefited the most that appear to be hit hardest in the unwind.

Technology stocks are particularly hard-hit as is the cryptocurrency market.

For the Australian Dollar further headaches come via expectations for below-trend growth rates in China.

"Surging domestic and global Covid cases should also cap and China’s activity data remains at significant risk given its zero-Covid policies ahead of the Lunar New Year," says Richard Franulovich, Head of FX Strategy at Westpac.

"On top of all the above, the Ukraine situation has not improved at all given news of cyber-attacks. Bottom line, we see the Australian Dollar at risk of probing into the 0.7100/ 50 region through the week," he adds.