Markets move shorter Australian dollar as yield spreads plunge

See the latest Australian dollar analysis here:

Macro Afternoon

DXY eased lower Friday night as EUR rallied:

The EUR/USD long remains extreme despite recent reversals:

AUD failed to capitalise:

AUD/USD CFTC position moved more bearish with a goodly drop to 16.8k net short positions:

EM forex was even more weak:

The breakdown in BRL is not good sign for EMs:

Gold fell:

Oil fell as US rigs jumped another 10 to 844:

Base metals lifted:

Big miners too:

EM stocks eased:

But EM junk was still bouncing:

The Treasury curve hit all-new flats:

Not bunds:

Stocks firmed and the S&P has broken out of it wedge pattern:

US consumer confidence was out and fell:

Indeed, the confidence spike has been somewhat illusory:

Which has forecasters doubting this week’s retail numbers, from BoAML:

‘According to BAC aggregated credit and debit card data, retail sales ex-autos declined 0.1% mom seasonally adjusted in April. This suggests that the better momentum in consumer spending seen in March failed to carry over to start the second quarter. We saw two headwinds for the consumer in April: weather and higher gasoline prices.

We find evidence that unseasonably cold weather conditions likely played a role in holding back consumer activity. Specifically, the Midwest and the Northeast experienced below average temperatures …

Higher gasoline prices also likely dampened overall consumer spending. According to the Energy Information Administration, retail gasoline prices jumped 6.4% mom in April as crude oil prices rose on negative supply shock and solid global demand. This led to a surge in spend at gasoline stations and a shift away from other categories. …

…Bottom line: Retail spending softened in April. The weather impact should prove temporary but rising gasoline prices is likely to persist, eating away some of the positive impact from higher after-tax wages seen post tax reform.

If right, that may hinder DXY this week.

Even so, AUD/USD spreads keep hitting new wides. Friday night saw the two year hit 54bps and five year 44bps. The 10 year is already at thirty year lows:

It’s never been cheaper to sell the AUD!


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. 

Houses and Holes
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  1. That was a very serious bounce in the AUD
    I’m bearish too with MB but AUD didn’t like the 74s
    It was a vicious move out of the low 74s
    Lots of longs taken out and 75 and players went short on the break below 75
    It’s goumg to take a strong rebound in dxy to take AUD lower
    Or RBA to turn to easing

    • What matters now for the Aussie is whether the ongoing surge in US bond yields abates itself and if investors can be encouraged to bet on a change in the RBA’s monetary policy stance at any time in the near future. Only time will tell whether the US yield story dies away on its own while next week’s RBA policy statement and the first quarter wage price index, due on May 15, will provide an answer to the latter.

      “The RBA seems to be the central bank for which investors are most clearly underestimating the likelihood of a progressive reduction of the current very accommodative monetary policy stance,” says Roberto Mialich, an FX strategist at UniCredit Bank. “This means that the Aussie Dollar is currently the most exposed among the three commodity currencies to some positive “repricing risk” should global trade tensions ease further and investors’ focus turn back to fundamentals.”

      Mialich says that monetary policy expectations in Australia are too benign and this is where the seeds of an Aussie Dollar recovery can be sown. He is not alone in having high hopes for the Antipodea unit either because other strategists have also kept an eager eye on the currency during recent weeks.

      “We remain of the view that AUDUSD pullback could be the last chance for us to buy the antipode as AUD typically rises in a growth environment with modest inflation,” says Saktiandi Supaat, an FX strategist at Maybank in Singapore, in a note Thursday. “We stick to our view that we dips are seen as opportunities to accumulate.”

      • BrentonMEMBER

        Is anyone in any doubt about what would happen to the Australian economy if the RBA hiked? Roberto needs to actually analyse the economy he’s talking about, as opposed to dreaming about the $$$’s he would make from a correct contrarian play.

  2. AUD GBP looks surprisingly strong. Like, good enough to long. It’s all about strong DXY and weakening Europe I feel. Not sure the AU story has even started yet.