Mrs Watanabe abandons Australian dollar

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Bloomberg is carrying an encouraging story on the release today of Japanese capital flows data:

Japanese portfolio investors reduced Australian-dollar bond holdings by 439.3b yen in January, Ministry of Finance data show.

This is the third straight month and the longest such stretch since six-month stretch ended July 2007. The data eludes me but there are other signs that the Australian dollar has had its day. Here are a couple of charts from a UBS report last night showing a showing of interest in bonds and FX portfolio diversification (“other being AUD”):

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And Morgan Stanley today hijacks my own argument, that Chinese rebalancing is hitting the dollar:

…while AUD is sensitive to the overall performance of the Chinese economy, especially via its demand for commodities, there also appears to be a close link via the performance of the housing sector…the most significant AUD reaction to negative surprises coming from China recently has been to the sharp decline in the property sector. This is consistent with our analysis, which has found that developments in the Chinese housing market have been a good leading indicator for AUD over the past few years.

Using the relative performance of the Chinese housing sector against the broader equity market as a proxy for developments in the Chinese housing market, we have found that this indicator has a tendency to lead the performance of AUD by around a month (see Exhibit 3).

It’ll take time, but the dream (nightmare) for the battler is coming to an end in my view.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.