Strategists scramble to catch-down to tumbling Australian dollar

See the latest Australian dollar analysis here:

Macro Afternoon

Because they sure didn’t see the drop coming:

CBA looks as credible as you’d expect for a mob of gangsters.

More catching up happened at the AFR:

“The move in the Australian dollar is a function of the US dollar’s advance, says Ray Attrill, head of foreign exchange at NAB. “It hasn’t underperformed against other currencies. The US dollar is breaking out of a range it’s been in since the start of the year.”

…Westpac senior currency strategist Sean Callow pointed out that 10-year Treasury yields were threatening to break the 3 per cent level early this year but didn’t provide the US dollar with much support at that point. “We were surprised at the extent of the US dollar weakness at the start of the year,” he said.

…”Conversations about RBA rates started the year focused on whether the RBA would raise interest rates by the end of the year. That’s now only about a 20 per cent chance,” said Mr Callow.

…Mr Attrill says that, with the US dollar starting to enjoy a fair bit of “currency market love”, that could add up to a cent or two more of downside for the Australian dollar.

Westpac has been good on the AUD though its 72 cents target for year end is too bullish, I reckon.

The reason why is simple. The above musings are correct to the extent that the USD has broken out on its growth and interest rate leadership. However, it also being driven by the big slowdown in Europe where the EUR seriously overshot.

There’s a second leg to that global slowing to come in the second half of the year that has a much more direct bearing on the AUD: China. Credit is the leading indicator:

You could use iron ore as well. The point remains the same. Where Chinese credit goes, building plus bulk commodities and the AUD follow. ‘

We remain comfortable with our 70 cents year-end view and expect lower again next year.

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 to international stocks but with bonds and other assets as well to ensure a more conservative mix.  

The recent performance of both is below:

Nucleus March 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. 

David Llewellyn-Smith
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  1. Super Phoenix

    If you look at a 10 year chart of AUD/USD you will find that the long-term uptrend line is still intact.

      • Super Phoenix

        I said “still” intact – i.e., too soon to short.

        BTW, in the China broad credit chart, the correlation with the AUD movement is not clear. In particular, they are almost anti-correlated between mid 2010 and mid 2013. That is 30% of the duration covered.

      • bcnichMEMBER

        I think MB is too bullish on AUD but I understand why you have to, AUD looks like it might be 72s in the next month or 2
        Think we may see mid 60s by end of this year if we have 1/2 rate cuts this year.

    • bcnichMEMBER

      I think you are wrong SP
      I think we have broken down in AUD and think 7250 a possibility even this month

      • SupernovaMEMBER

        I think so too. Also think the Australian Dollar is falling/may continue to fall at a faster rate than the US dollar. Just a hunch!

    • The Traveling Wilbur

      Everything is awesome. China will spend some more money (credit), the Republicans will blow up their economy like they always do (dollar). And we’ll all be rich.

      There’s never been a better time to hold Australian currency.

  2. Ray should look at ATWI on his Bloomberg. The Aussie dollar has been falling steadily on a trade weighted basis since July 2017. Its been masked in the AUD/USD Cross rate by USD weakness – which is now being revealed as the dollar rallies – but it’s tumbled consistently on the crosses. To argue this is New is simply [email protected] Poor analysis…

    • GS have been saying the same as you, and on BBG made a 72c “guess” like WP by December. That’s not far off where we are, and on other global charts I’ll be amazed if we’re not closer to 70c. If our housing falls accelerate then I’m sure we’ll be way lower than 74c.

      • Mr SquiggleMEMBER

        I thought the accepted wisdom was the AUD overshoots when its going through an adjustment (in both directions).
        Is $0.70 the fundamental value or overshot value?

  3. bcnichMEMBER

    Does anyone know what caused AUD and dxy to reverse so aggressively and spike over the last couple of hours ????

    • Super Phoenix

      random fluctuation?

      A large multi-national corporation can invest and/or repatriate profits at any time it wishes to do so. It is impossible to predict the timing of their transactions.

  4. I wonder what Philip Lowe is thinking. All he has to do is hint at the possibility of a rate cut, instead of walking around saying the next move in rates is up. If he does that, the $A will gap down to below 70 cents.
    Given that a weak $A is good for Australia, it seems a mystery that he doesn’t do this.
    A weak $A could spark an export boom and a foreign investment boom into manufacturing, which will lead to a lower unemployment rate.
    He doesnt even have to cut rates, just say it is a possibility and all his unemployment problems will be solved.
    What a moron!