Why is the Australian dollar rising?

The Aussie is on another tear today. Why so when commodities are through the floor? The chart is clearly short term bullish with a broken medium term downtrend line and bullish ascending triangle pattern:

The first reason is that the market is still very short at -57k contracts, leaving it vulnerable to sharp reversals:

The second reason is Glenn Stevens’ recent idiotic comment that markets should “chill out” over further rate cuts.

The third and most important reason today is that the US ISM came is very weak (chart from CR)

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management^® (ISM^®) Manufacturing Business Survey Committee. “The November PMI^® registered 48.6 percent, a decrease of 1.5 percentage points from the October reading of 50.1 percent. The New Orders Index registered 48.9 percent, a decrease of 4 percentage points from the reading of 52.9 percent in October. The Production Index registered 49.2 percent, 3.7 percentage points below the October reading of 52.9 percent. The Employment Index registered 51.3 percent, 3.7 percentage points above the October reading of 47.6 percent. The Prices Index registered 35.5 percent, a decrease of 3.5 percentage points from the October reading of 39 percent, indicating lower raw materials prices for the 13th consecutive month. The New Export Orders Index registered 47.5 percent, unchanged from October, and the Imports Index registered 49 percent, up 2 percentage points from the October reading of 47 percent. Ten out of 18 manufacturing industries reported contraction in November, with lower new orders, production and raw materials inventories accounting for the overall softness in November.”

US manufacturing shrank in November which is a reason for the Fed to wait. It’s GDP Now forecast was hardly reassuring, either:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 1.4 percent on December 1, down from 1.8 percent on November 25. The decline occurred this morning after the Manufacturing ISM Report On Business from the Institute of Supply Management and the construction spending release from the U.S. Census Bureau.

Outside of manufacturing the economy is still plugging on with housing and autos firm and consumers OK if a long way from spectacular. If the jobs report comes in half-decent on Friday then the Fed will still hike, I think. If it’s weak, then they’ll have to wait again, and the Aussie will fly.

That will only be another shorting opportunity, however, because in reality the Australian economy is being hammered by the income recession and more rate cuts will come as the following chart destroys mining profits, nominal growth, Budget revenues and national wages:

And as the terms of trade collapse, so too will the Aussie (TWI is trade weighted index)