Australian dollar enters doom loop

by Chris Becker

More doom and gloom from the currency forecast brigade this morning, with HSBC and Rabobank both pipping sub-70c levels for the Australian dollar before the end of the year as the RBA is poised to cut rates after failing to dampen down the bubble it created.

From Bloomberg:

“The RBA just sat there watching the housing bubble grow for the past couple of years,” said Michael Every, head of Asia financial markets research at Rabobank in Hong Kong.

“You’re in a doom loop. Now that the Federal Reserve is finally on hold, the RBA can finally talk about cutting again — and they will.”

Australia’s household debt-to-income ratio has skyrocketed to 189 per cent from 67 per cent in the 1990s, according to data compiled by the RBA. The increase has gathered pace in recent years as a decline in interest rates encouraged households to take on more borrowing, while an easing of constraints on bank lending increased the funds available, RBA Assistant Governor Michele Bullock said in a speech in September.

Evidence A and B of RBA’s mismanagement:

It’s not just a lower dollar, but Australian bonds face repricing, with the yield differential extending its negative form going into 2018.

This has HSBC “concerned” particularly given the widening amount of sovereign debt, not just the Titanic household debt levels:

“What does concern us about Australia is that their interest rates structure is below that of the US, and we would argue that the US is a lower risk profile,” David Bloom of HSBC said, referring to the nation’s debt levels. “You’re getting paid less for the Antipodeans, and you get more risk.”

Relax guys. We’ve had 23 plus years of uninterrupted growth. Risk? What could go wrong?

Comments

  1. Even if RBA cuts it will nothing for mortgage holders. Seeing that they cut before it didnt really hit AUD that much because investors have no where else to put their money with confidence. This is why AUD hasn’t moved as much recently

    • Someone recently posted about a big hedge fund the best place to keep your money in Australia as opposed to elsewhere because of the stability issues

      • proofreadersMEMBER

        If the RBA cuts, it will make the prayer group that runs the joint happy as their favourite sport is screwing savers up the anus.

    • The property ladder looks a lot like the interest rate ladder. Now it’s 2 steps up and half a step down.

  2. Well I did my bit. Moved some spare GBP back into AUD this week, needed some spending money. 48 hours later AUD is down 2.5% against the pound 😭

    Wasn’t that much money but still … grrr! But hey, no surer way to sink the poo than for an MB member to buy some!

    • LOL, I have to move Euro -> AUD and USD -> AUD. But I will try and hold in those currencies as long as possible.

      • Yeah… Eventually the time will come to move the USD stack home… that will be a bit more interesting because a percent or two in daily FX fluctuations will make a meaningful difference there.

        I guess the tactic is to move it in three or four chunks over a week or so, to even out the bumps and reduce the risk that a little spike in the AUD at the wrong time will rob me too much. Any thoughts?

      • Thanks! They look good. I use currencyfair – very good rates (about 40 pips off mid market rates), very low fees ($4 per transaction). The problem was my timing – bought the poo 48 hours too early. Lucky it wasn’t tooooo much cash but still, 2.5% is a year’s worth of interest!

  3. Chris do you think the market is still short aud on the CFTC???
    There hasn’t been a publication since dec 21???
    Chris when you say Australian gov bonds need pricing is that lower yield or higher yield due to sovereign risk ??
    My feeling is Aussie bond yields much lower but I’m not sure what you meant by repricing ???

    • Thanks bcnich. Was going to ask the same question re Aussie bonds. Anyone else think the RBA will employ QE, crash the currency and look through any imported inflation ala Bank of England?

  4. ErmingtonPlumbingMEMBER

    Cool,..so soon it’ll cost taxpayers more to buy our Police cars and other Govie vehicles from OS than make them ourselves.
    Not to mention the Taxi fleet and large percentage of UBER hybrid Camrys that’ll also cost more from OS.
    Go Straya!

    • Nothing more intimidating than a Kia Stinger police car. LOL…

      They are actually quite quick, but not really intimidating looking.

    • And all of our expensive first world medicines for our home grown population the non tax contributing elderly Indian, Lebanese and Chinese born but now Medicare card holders imported over the last 15 years.