Free fallin’ Australian dollar takes out new lows

See the latest Australian dollar analysis here:

Macro Afternoon

The Aussie dollar is free fallin’ this morning, taking out lows not seen (for more than a few seconds) in three years:

Remarkably, the key driver of value, the terms of trade, is higher now than at any time since the 2016 lows:

But the other key driver of value, the yield spread, is at 40 year lows versus US yields, deterring capital inflow and prompting outflow:

It is the Aussie dollar tug-of-war on the century and while the trade war adds negative sentiment, the negative yield spread wins.

David Llewellyn-Smith
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    • Aussie Dollar low is good. Petrol up is unpopular but bearable. Inflation is nowhere and RBA won’t mind a bit – if a lower dollar gets it going a bit so much the better.

      • TighterandTighter

        Bearable eh? Do you drive to work due to lack of public transport options in the regions?
        [It’s bearable for some, and not for many others]

      • Inflation nowhere? 😛 I’m sure you know that’s not true. But the way the boffins at RBA measure it, I suppose it’s nowhere. Cost of living pressures are up I think.

      • Agreed 100% Gav.

        Tighter – I agree there will be some impact, my point is that the overall economic effect will be bearable and beneficial in the long run. I agree for some individuals the pain will be more acute. Just as for some others a high AUD was very painful. There’s no setting at this point which is pain free.

        Incidentally I am talking here about a few more cents lower in the AUD, not an overnight crash to USD 0.50

  1. Stagflation is coming baby!

    Rates will rise as (a) the RBA’s credibility is in the toilet, they will need to be ‘seen to do something’, (b) funding costs will rise for the banks as the falling currency sets the bias the wrong way – how will they fund all the [email protected] that was too lousy to be securitized (even with an implied partial gov bailout, and assuming Genworth is partially-nationalized at some point)? [ the gov getting into the insurance biz for FHB is just the start ].

    Rates might fall just a bit, but the muddle through play by the RBA means that what the Fed does will set the tone going forward. Anyone want to take a bet that the Fed no longer will have an easing bias? Does anyone think keeping the globalists liquid is in Trump’s best interest?

    I get that the ‘actual’ economic situation in Oz means rates should be cut. But why would you assume the ‘actual’ situation will ever be allowed to become common knowledge? Do you think they can’t get ABC/Murdoch to lie about the state of the economy – or simply juice immigration. What is the track record?

    They will lie until they are blue in the face, and pretend the economy is going ok, specifically to raise rates to take the pressure off funding costs. How else will the banks be able to afford massive non performing loan books without going under? Expect the ABS to make more … technical adjustments to their numbers.

    What else can they do?