Australian dollar shorts puke as Democrats seize US House

See the latest Australian dollar analysis here:

Macro Afternoon

It’s now a crushing defeat for the Republicans in the House:

Goldman saw this outcome this way:

Divided Congress Is the Base Case

A Democratic House and Republican Senate is the clear consensus view among market participants and political analysts. As such, we would not expect a substantial market reaction to this result. From a policy perspective, we would expect the following under a divided Congress outcome:

Taxes: We expect no major tax legislation under a divided Congress scenario. However, with no major policies due to expire in 2019 or 2020, this would have little effect on our baseline fiscal policy view that tax policy goes from growth-positive to growth-neutral by late 2019. It is likely in this scenario that the Democratic House would try to pass tax legislation that redistributes the 2017 tax cut toward lower income households while also reversing the limitation on the state and local tax deduction. However, it would be very unlikely to attain the 60 votes needed in the Senate in this scenario, if it even came up for a vote.

Spending: Under a divided Congress, we would expect Congress to approve discretionary caps for defense and non-defense spending for FY2020 and FY2021 that are roughly flat in real terms with the spending caps for 2019 that Congress approved earlier this year. This is the assumption underlying our fiscal projections.

Infrastructure: We expect that a major infrastructure program such as the President has proposed would be unlikely under any election scenario, though some funding could be diverted toward infrastructure out of other non-defense spending, as it was this year. While President Trump and congressional Democrats have both supported infrastructure programs, the details differ substantially and, more importantly, Democrats might not be motivated to reach an agreement with the White House prior to the 2020 presidential election.

Trade Policy: A Democratic House would be more likely than a Republican House to block the implementing legislation for the US-Mexico-Canada Agreement (USMCA), but we expect that the deal would eventually be approved. However, potential opposition could prompt President Trump to initiate the withdrawal process from the current NAFTA, forcing the House to choose between the new deal or none at all. In the absence of a legislative agenda in this environment, the White House would be more likely to pursue additional tariffs on imports from China, in our view (implementation of further tariffs by early 2019 is our base case).

Regulatory: Control of the House would have little direct impact on the regulatory agenda, since (1) it would likely be blocked in the Senate and (2) most regulatory changes under the Trump Administration have been carried out with existing authority and have not needed congressional approval. That said, it is likely that regulatory scrutiny of some regulated industries (health care, financial services) could increase through House committees.

Fiscal deadlines: Fiscal deadlines become riskier under a divided Congress. The next spending deadline is December 7, 2018 (before election results take effect) but this is likely to be pushed to either Q1 2019 or September 30, depending on what Congress decides after the election. Under a divided Congress, there will be a substantial risk of shutdown at the next spending deadline in 2019, though whether it happens will depend on the political environment at that point. The debt limit will be reinstated March 1, 2019 and we expect Congress will need to raise it by August. We note that the two most disruptive debt limit debates in recent memory, in 2011 and 2013, both occurred in a divided Congress.

We are not so bearish on further stimulus measures but the Aussie dollar is not waiting around to see as the mega-short pukes positions:

To the moon!

Aided by RBA stupid.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


      • What is the traders’ logic here for the AUD rise? No more US stimulus means US economy weakens means fewer Fed rate rises means eventual DXY weakness?

        Seems convoluted to me, compared with this:

        If Trump is neutered in the house he will go harder on foreign and trade policy. More trade war. AUD bearish x 10.

        In Goldman’s words: “In the absence of a legislative agenda in this environment, the White House would be more likely to pursue additional tariffs on imports from China, in our view (implementation of further tariffs by early 2019 is our base case).”

        Why is it risk on / AUD up? (other than just a big short squeeze)?

  1. Not really that crushing. Just goes back to roughly 2016 levels. Repubs gained Senate and Governors spots. Just means less will get through.

    Massachusetts voters re-election a woman who claims to be 1/1024th native American was hilarious.

    • Yes why would they want to re elect a woman professor? They should have elected a numptie who never reads books and thinks Sean Hannity is a journalist.

      • False binary argument. Just because I think Elizabeth Warren is a complete fraud doesn’t mean I then want an equally deplorable journo as her replacement. I’d prefer neither.

        And just because one is a professor doesn’t make them educated. Schooling and education are two different things as Ms Warren and ancestry clearly demonstrate.

      • Just because one is a professor doesn’t make one educated. Really? Spoken like a true Trump philistine. Trump is a symptom of the decline, not the cause but the decline is most apparent just in reading your preposterous attempt at argument. Just because one is a professor doesn’t make one educated, loooool

      • Trump philistine? Where did I say I was a Trump supporter? Again, false binary.

        Do you consider Dr Liz Allen educated?

      • Elizabeth Warren is a fraud. Not only because of her ancestry claims, but how successful has her CFPB been?

    • Maybe he thought he could actually lose the presidency if it went too wrong – he’s still president so must be success!

      • Maybe, the house isnt worth diddly squat.
        Win what you can win, and keep a firm foot on what you cant.
        he’s still president so must be success!> agreed.

    • He is well placed for 2020 from here….the gap in the house is not big and the inevitable recession will now be blamed on the Democrats just in time for 2020 .Meanwhile the Senate results will make it easier for more conservative judges and officials to be put in place.

      • Once the Democrat House committees with their extensive investigative powers start to expose his business affairs, he will be hovering in the mid 30s in terms of approval. He had both Houses and could manage a high of 45. Hardly Ronald Reagan, is he?

      • IMO 2020 will be won on how the trespassers approaching the border are handled
        IT seems already the national guard has been outnumbered by “Minutemen” , and the contingent of defenders looks to now to be greater in number on the Texas side of the Rio Grande, than the no of trespassers approaching.
        And the militia has everything needed and more
        “Its Texas isnt it”
        by 2020 the blue opposition will be blue in the face from worry in their position as the underdog.
        Woo hoo.
        I’ll wager Skippy wishes he was there.

      • If the border was an issue at the top of voters concerns, the House would still be Republican. Exit polling, somewhat predictably had the high cost of health care as the number one issue concerning voters.

      • Astro
        the guys who are gunna sort out the trespassers are Minutemen
        they dont have any health issues. quite the contrary.

      • “”IMO 2020 will be won on how the trespassers approaching the border are handled””, Wiley I cant see the 2020 election being decided on a what happens at the border. Some people will base their vote on that, not many. Let us see, its all very interesting. Fascinatingly we hear a lot about how sanction hit oil dependent Venezuela is supposed to be the typical socialist state. But the people approaching the border are from failed central American states that followed the US model. Don’t hear so much about how the US economic model has created the social breakdown in those central American countries.

      • Astro
        you are correct
        there is a hierarchy of rules
        Ever since Moses came down the mountain,
        we have had to consider their importance

  2. A run to 75-76 before another move lower is not out of the question. This would still be a bearish bounce.
    Bulls really need AUD to get above 81 (top of recent range of last few years) to get excited.

  3. If you guys just zoom out your chart a little bit you will see that the downward trend has hit a floor and has been pretty stable oscillating between 71 and 73 for like 4 months now. The sensational headlines are a bit much when the truth is “AUD pretty stable around long term average”. If you look at a 20 year chart 73c is smack bang in the middle.

  4. Biggest winner out of all this is China, all the effort with tax changes/tariffs to bring back investment/manufacturing to the US is dead now.

    This is why our dollar is back up, the China play is back on. House prices to rise again as China investment resumes.

    US voters are too stupid and blinded by identity politics to realize their nation is being hollowed out.

      • No more tax reform, he can’t pass anything, following this trend line shows he’ll be out in 2 years. Why would you invest in the US with a deadlocked parliament and lame duck president now.

        China wins this, Trump has no power and will be fighting constant investigations from the dems with nothing better to do now.

      • Foreign policy is a Presidential power. None of the China tariffs have come through the House. Trade war is still on.

        Why would you invest in the US? Because there is no where else worth investing, the same as before the midterms. There is a reason the US is the only place hiking at present. The structural weakness within China has not gone away; just temporarily dressed up with moar stimulus. The structural weakness within Europe has not gone away. Nothing has really changed.

      • Because of its effects on the American economy.

        Brenton the only thing Trump is helping is the FIRE sector.

  5. kingofallthegauls

    america is the greatest evil in the world today

    a contemptible society that exports its decayed morals and economo-centric mental disease to the rest of humanity

    a society with moral underpinnings predicated in the moneylenders, virtue signallers and browbeating brokers who huddle atop the rotting planks of capitalism

      • kingofallthegauls

        who r u &

        i didnt even have any final exams

        not every class has exams

        maybe u failed yours???

    • @kingofallthegauls
      How true – glad some one else noticed. Snip below from Clive Maund ( American)

      “The so called booming economy in the US right now was financed by tax cuts, and since that means a shortfall in revenue for the government, the difference has been made up by growing the deficit. That’s alright when you can count on foreign mugs to keep conducting trade in US dollars and recycling those dollars into Treasuries, thus enabling the US to live the high life as it has since the 2nd World War by swapping piles of intrinsically worthless paper (dollars and Treasuries) for goods and services – nice work if you can get it. However, there’s an old saying which goes “Don’t bite the hand that feeds you” and the US has in the recent past not just been biting the hand, but chewing the whole arm off. Many foreigners are indeed corrupt, stupid and gullible – just look at those idiots in Europe allowing NATO wargames right on Russia’s doorstep – it’s like they learnt nothing from WW2, but if you kick them in the teeth hard enough even they start to question their loyalty. US foreign policy since the 2nd World War has basically operated along the following lines with the blunt message to the rest of the world – “You stick with using the dollar in international trade, because if you don’t, we’ll destroy your economy with sanctions (and now tariffs), and if that doesn’t work we’ll send our military over to give you a bloody good hiding”.

    • I am sure a Chinese or a Russian empire would be that much better. Sure America has made mistakes – and will continue to do so – but under is capitalist influence millions upon millions of people are out of poverty.
      Another great power alternative can be much much worse.
      At least America doesn’t put a million people into “education camps”


    Democracy at work.

    The old rule – which originally sought to disenfranchise African Americans – was only overturned thanks to citizens’ right of constitutional initiative.,_Voting_Rights_Restoration_for_Felons_Initiative_(2018)

    (Florida has constitutional initiative but not legislative initiative, one of the many models of genuine Democracy.)

    Also the absence of gerrymander in California and Arizona is due to Democracy, specifically:,_Creation_of_the_California_Citizens_Redistricting_Commission_(2008),_Proposition_106_(2000)

  7. Incoming major global event to reinvigorate American faith in the executive in 3….2…..1……

    I think people are completely forgetting that Bolton – a man Rumsfeld, Cheney and Kissinger consider to be a lunatic who should never be let anywhere near foreign policy, and the most likely man to ever start a global nuclear war – is now in the most dangerous position he could be in – given his registration on the Hare psychopathy scale.

    Iran sanctions have JUST kicked in – almost as though this date were planned – the consequences are going to be massive and you can all expect petrol prices to go straight through $2 and push $2.50 before the end of 2019.

    The US knows the end of the oil age is upon is – global warming plus Tesla have seen to that – so take out the competition, ratchet up the price and engage in the biggest financial windfall in the entire history of the black gold.

    Its going to crush all competition and drive the US to the moon. Venezuela is crushed, Saudis are in the gun sights, Iraq, Syria, Libya, Iran all taken out – only Russia remains.

    Good luck to the Democrats – they are now totally irrelevant.