The Australian dollar top is in

The Australian dollar firmed Friday night as risk jumped back into stocks:

Net speculative positioning rose slightly on the week to 13.7k contracts:

However, there are good reasons to think that the big AUD top is past in the mid-81s. Although still in a two year uptrend, the Aussie dollar has also formed a nice bearish double-top pattern:

As well, it looks probable that the USD has stopped falling (and begun to rally) given if it was to keep tumbling then stock markets will keep exploding on the US inflation panic, which in turn scares up the USD. As well, EUR is way overbought, ECB jawboning has begun and the disruptive Italian election looms taking heat out of that trade.

For the Aussie that now means commodity prices under monetary pressure. We can already see this in reversing base metals and more particularly oil which is now crashing as the huge hedge fund long pukes into gushing US production:

That is likely to add downwards pressure to the wider commodity complex as China slows into mid-year. Note that I don’t expect the all-important bulk commodities to break until Q2.

 

But when they do, the unprecedented trend divergence between the AUD/USD and the Australia/US 10 year bond spread is going to correct itself:

As the Aussie tips over.

Comments

  1. “But when they do, the unprecedented trend divergence between the AUD/USD and the Australia/US 10 year bond spread is going to correct itself”

    Looking at the graph, they never really correlated at all.

    • I was at about that level too, but.
      the chinese calling their money home cos their warriors who were supposed to bring power to the CCP nation with all the off shore investments, mis spent it on houses n hotels n hookers which have decreased in value and now the motherland is tapped out, the whole country, and the poor chinese who saved their money to support this xtravaganza are asking where is it, when do we get it back, that the commo govt in china has now hit rock bottom and called in its loans.
      there has been a vast amount of money pissed away by the chinese just on the gold coast, and as Mr Buffett says, it really is not apparent till the tide goes out.
      well up here on the GC the tide is going out and a vast amount of loot is being salvaged for repatriation at about 50c in the dollar.
      As that money pulls out straya will collapse.

  2. Once upon a time, investors wanted a weak USD because it was good for stocks and commodity prices.
    A stronger USD was feared.
    Now, investors are told that we need a stronger USD and a weak USD is feared, as it fuels inflation expectations.
    Amazing.

    • Mate!!! You have to stop thinking too much about modern Economic reasoning!!! You’ll go mad!!
      (Insane laughter!)

      • Hi Flawse-I was just reflecting on the recent commentary on this site. One day we want a weak USD, the next day we want a stronger USD.
        Personally, I want a weak USD as I don’t think that it is as inflationary as some people are saying.
        Anyway, you might be right. I might be thinking too much.
        Cheers

    • Let me suggest that the main difference between now and then is the proportion of debt involved, and the implications for inflation on interest rates. Hence, the fear…