Today Bloomberg wonders why the Aussie dollar is not tracking iron ore:
“Really, it should be going lower,” said Andrew Ticehurst, a rates strategist at Nomura Australia Ltd. in Sydney, who notes a declining U.S. dollar is helping prop up the Aussie. “If commodities are falling appreciably and the currency’s not offsetting it, that’s a net tightening in financial conditions and becomes more of a headwind.”
Meanwhile, interest-rate bets have moved: traders are now pricing in a one-in-five chance the Reserve Bank of Australia will end a pause in September and lower interest rates by a quarter point from the current 1.5 percent. That’s a turn away from the consensus view: that policy makers can’t cut for fear of further inflating property prices and household debt; and can’t tighten to contain the housing market because weak employment, record-low wage growth and subdued inflation suggest it would hurt the economy.
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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.
