Australian dollar slammed with emerging markets

The DXY charge was back last night as EUR fell:

AUD was slammed:

But EMs fell more:

Confirming the USD charge is gaining momentum, gold was smashed:

Oil held up:

Base metals were mixed:

Big miners fell:

EM stocks were smashed:

As EM junk gave way:

Treasuries were pounded and the curve even managed to steepen:

Bunds copped it too:

And stocks fell as yields took off:

The culprit? Good US data versus softening in Europe and China. The NY Fed shots the lights out at 20. Retail sales hit 3.6% annualised in April after running at a revised 9.6% in March. And builder confidence rebounded. German GDP missed and yesterday’s China data showed clear signs of slowing. Making matters worse, Italy’s new government looks pretty radical.

The result is capital flight everywhere from India to Argentina to Turkey:

Even CNY was smacked to a new low which will not please anybody:

That’s monetary tightening right across emerging markets as all of that USD funding gets more expensive fast:

The next shoe to drop is Chinese growth and commodity prices.

AUD is toast.

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David Llewellyn-Smith is the chief strategist at the MB Fund which offers two options to benefit from a falling AUD so he is definitely talking his book. The first option is to use the MB Fund International Stocks Portfolio which is always 100% long as a part of your own asset allocation mix. The second option is to use an MB Fund tactical allocation in which we choose the asset mix for you, including exclusively international stocks, but with bonds and other assets as well to ensure a more conservative mix.  

The recent performance of both is below:

Nucleus Relative Performance
If these themes interest you then contact us below. 

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. 

Comments

    • No kidding michealb. I think it’s because the Australian media and government are misleading people. You would think people would do their homework but that’s not the case

      • The People that move the AUD exchange rate DGAS about Australian media. It’s clearly some other reason why the AUD keeps crashing to eternal heights.

      • 2% in 2 months is hardly getting slammed. Although the trend is down.

        What is the headline when it drops to .65? .55? “Super Duper Crash?”

    • Super Phoenix

      Actually, I think there is a case for AUD to rise.

      Suppose the government abandons the idea of the bank guarantee. The commonwealth balance sheet is in a much better shape than that of any other developed government. AUD can rise, and rise hard, if there is no possibility that the private balance sheet can be transferred to the public balance sheet.

      Of course, whether this is politically viable or whether the market will believe it is a separate question.

      • Portents of AUD doom would also bear more meaning if it wasn’t literally everything dying against the DXY. To paraphrase Peachy above, the people who move the markets DGAF about what happens here.

  1. Wow just looked on Bloomberg the 10 year US yield has risen 9 basis points to 3.07
    That’s a big move
    15 year now 3.20%
    That’s the biggest move in a very long time in the bond market

  2. Gundlach says watch 3.22 on 15 year
    Clear break of 3.22 and it’s yields higher
    He’s been wrong on the USD with Peter “Sniff” but Gundlach has picked the bond market well
    With QT from October 1 50 $B per month and US DEFICIT increase of over $1 Trillion that’s a lot of issuance
    Looks like the 10 year might be heading to 4%
    So if the AUD 10 year heads towards 2% or lower and YS 10 year is 4%
    AUDUSD is going to get pounded even without a fall in commodities
    If commodities fall AUDUSD could be back in the 60s by AUGUST

    • Super Phoenix

      Yes, the quantitative tightening will cause the Treasuries to fall and US rates to rise.

      This will in turn cause USD to rise across the board but it shouldn’t be. After all, falling Treasuries is a reflection of falling creditworthiness of the US government and as such should lead to downgrading of the Treasury notes.

      Not that it will. Just another example of utter ludicrousness of the modern financial world.

    • GeordieMEMBER

      That is my fear. The RBA cuts too late to try to save the bubble, the dollar, already falling, is poleaxed and a massive wave of inflation sweeps the country crushing households as they skip food to fill the car to get to their part time jobs. That’ll end well…

      • Super Phoenix

        “as they skip food to fill the car to get to their part time jobs”

        What a wonderful world.

    • Presumably there are Macrobusiness equivalents in Spain, Cambodia and Thailand where locals populate the comments section bemoaning the overweight arriviste Australian pensioners driving up the cost of housing and coffees in their local towns.

  3. Houses 5.43am for original post is a bit above and beyond …. unless you are in the US at present. Great dedication though.
    Reminds me of dot com era when US dollar was high because every investor globally wanted to get on board. Although cause this time very different.
    I think RBA would welcome an AUD with a 6 on it. We could finally finish the post mining boom adjustment and produce higher than the stall speed growth we have had for 10 years.

  4. Tell me about it MichealB. I see this AUD gets slammed or whatever and I look it up and its gone down .20cents or gone up.10 down .40 When it drops 2-3 cents in a day then lets talk about it getting slammed.

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