Australian dollar bashed on trade shocker

The Australian dollar is within millimeters of breaking to new correction lows:

If it goes, and can break 75 cents convincingly as well then the post-2015 uptrend line will rupture, piling on the heat.

Credit Suisse sums up the new weakness:

From a GDP perspective, the sharp decline in the trade balance dwarfs the bounce in retail sales in October. In aggregate, the economy has not gotten off to a good start for 4Q.

The deterioration in the trade balance implies nominal tightening for the economy. Recall that the trade balance plus the size of the fiscal deficit must by definition equal private sector saving. A lower trade balance, combined with diminishing fiscal deficits implies that private sector saving must be falling, imparting a tightening of financial conditions upon corporates and firms. Historically, this sort of change in financial conditions can cause over- and under-shoots in the profile of GDP growth relative to models based on private sector credit creation alone.

The deterioration in the trade balance supports our view that the AUD/USD needs to weaken further. If the government is not dis-saving more, and failing to print money, while the household sector is over-indebted, the only way to generate more private sector saving is for the trade balance to rise. In turn, this requires a materially weaker AUD/USD.

Yes, it does.


David Llewellyn-Smith is chief strategist at the MB Fund which is currently long local bonds and international equities that offer superior growth and benefit from a falling AUD so he is definitely talking his book. 

Here’s the recent fund performance:

Source: Linear, Factset

The returns above include fees and trading costs on a $500,000 portfolio. Note that individual client performance will vary based on the amount invested, ethical overlays and the date of purchase. The benchmark returns do not include fees. October monthly returns are currently at 4.9% for international and 4.2% for local shares. 

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The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. The MB Fund is a partnership with Nucleus Wealth Management, a Corporate Authorised Representative of Integrity Private Wealth Pty Ltd, AFSL 436298.


  1. On the basis of Morrison’s interview, which UE posted, the dollar should have crashed. The trade figures underline the crisis.

    • boomengineeringMEMBER

      Crisis for some, Roger St Brookvale receivership sale partially finished dev near W mall. 1,266m2 site.

      • The one on the corner of Old Pittwater and Roger St is going into receivership – awesome news.
        And so many people have said to me “Nah, it won’t happen on the beaches mate”. The amount of dev stuff that’s just starting in Dee Why is unreal and it’s all in the shadows of Meriton’s 17 storey twin towers that looks to be 6 months from completion

      • I posted a couple of months ago re Harry’s development at Dee Why and, apart from anything else, wondered how another 1000 or so cars might feed onto Pittwater Road in the morning peak, given that it’s just about gridlocked now. And there’s another build across the road!

        @boom, drove past 22 Raglan St – still on the market, it seems. Sale by “Expressions of Interest” wouldn’t appeal to too many would-be-purchasers, I don’t think.

      • The B1 buses every 5 minutes are supposed to be the answer. Double decker buses – what a revolution.

      • boomengineeringMEMBER

        10-12 Rodger St not OPR corner (closer to the mall) 4,500m2 building
        Yeb, 22-28 Raglan St only appeals to very small base but it used to be an ambulance st (not fire station) so the walls could be knocked out for a car collection, too bad Gavin can’t afford it.
        Anzac, those buses already knocking branches off even after the tree loppers have been.

  2. When the A$ has fallen 4 or 5 cents tell me it has been bashed. 0.2 of a cent is just some clown wanting a few thou USD getting a price.
    Everyone knows we can just get some more debt and sell off some asset to then cover it.

  3. Hmmm OK sorry for the language!!!!! After 50 odd years of beating my head against a brick wall I hoped I might get a bit of leeway:)
    So……“Recall that the trade balance plus the size of the fiscal deficit must by definition equal private sector saving.”
    Censors please pass my language!!!!
    What a load of absolute BALONEY (this is where I rfan into trouble with the censors 🙂 )!!!
    How damned stupid are these people????????? Can the moron from Credit Suisse put his name to this? Stupid damned modern economics where there is no such thing as the external account! Exports don’t matter! GDP! GDP! GDP! We’re just selling off some more of the nation to pay our way. nothing to see here!
    Just as a damned extra! If the governement deficit diminishes in the face of a trade deficit( Sorry it IS the wrong term to use but it is all these morons know and have NEVER actually heard of a CAD) it Isn’t that the private sector is SAVING! It’s just that a little less is being injected into it. The private sector is still spending more than it earns – that is NOT SAVING!!!!! ) It’s still going into debt! The government fiscal deficit is ONLY about $7B. The National deficit is(currently) about $40B to $50B That means the private sector DEFICIT will be around $35BILLION That is NOT SAVING. That is an increase in debt!
    Strewth! I guess he studied Economics at some Western University somewhere so that would be some excuse for stupidity.
    I dunno!!!!

      • The Traveling Wilbur

        Also… On some browsers, if one forgets the above, the Back button works quite well at remembering your typed text. On mine, always. Won’t say what one that is so PDA – too embarrassing. : (

    • Please flawse….

      Your mingling hard currency and fiat optics which is acerbated by monetarists and quasi monetarists running the show, not to mention, neoliberalism as the bench mark underpinning the entire system.

      • Skippy
        If you don’t understand any macro; if you don’t understand anything that is being said; why don’t you shut the hell up????
        You are clueless. You have no idea what I was talking about so for goodness sake there really is no harm in keeping your trap shut.

      • Your from the mountain top thingy is not my drama….

        disheveled… I’ve got thousands of hours on you and more life experience, give it a break….

  4. Interesting trying to get an actual NUMBER for the ANNUAL CAD to m Q3. Nobody mentions the number. You just get % of GDP and GDP is a load of baloney. The NUMBER is actual debt!

  5. Good grief all anglo banks are intermixed, some days the club decides to whack one and then reward it the next, its called making packet.

    disheveled… the theoclassical economics does not even begin to cover it….