Get set for a rising Australian dollar

The Australian dollar has eased through the morning after last night’s jump:

Bonds are roughly stable as well:

XJO too:

Dalian has firmed a little at the open:

Big Iron is up:

Big Gas is up for no obvious reason:

Big Gold is flying on warming Fed cuts:

Big Banks are struggling:

Big Realty too:

I am wondering more fulsomely today if the Australian dollar is about to rise short term. With Treasuries now on a tear:

The negative yield spread to Australia that has prevented the AUD from rising with the terms of trade has for now begun to narrow, quite sharply at the short end:

The currency has immediately turned with it:

Hardly a convincing bottom in the spread but the easy part for a lower AUD has passed. As the Fed moves to cuts, the battle will now be joined with the RBA. We’ll need more stock market ructions for the Fed to shift quickly to cuts but they are coming, and the RBA looks its usual confused self around the Aussie outlook and which levers to pull, prudential or cash rate. This is made all the worse by the major bank’s campaign at the AFR to prevent rate cuts in preference for APRA cuts and fiscal spending, and it also appears Q1 will be OK thanks to the fiscal pump.

I don’t see a sharp recovery in either local property or the economy regardless as the external environment worsens, more of a grinding bottom in part because the Lunatic RBA will take too long to ease enough.  The good news for AUD bears is that that stubbornness will end in the Bank having ultimately to cut the cash rate even lower. But in the meantime the Fed will have out the chainsaw.

Iron ore should steadily fall away from here, the trade war plus a probable soft yuan will also weigh on the Battler, and if markets really begin to choke then the AUD will still likely buckle. But a self-defeating higher short term AUD directly into that global trade shock is now a plausible scenario.

It’s a boom in Australian macro mismanagement!

Comments

    • Wow that’s today!
      .25 would make me decently happy, but .5 would make me very happy with 31 odds locked in 😉

      • BurbWatcher, never worry about short term. Short term pain keeps us focused.

    • Still don’t think they will cut and I don’t think they should. CAD and TOT is ok as is GDP. Unemployment low. Inflation a bit lowish but not a concern. Jawboning worked. Since the last meeting most things have improved, not deteriorated. Hold for me.

      • BubbleyMEMBER

        I was going to say “they will drop for sure” but since the election I don’t trust my judgement on anything.

      • proofreadersMEMBER

        Captain Phil would be run out of town on a broomstick – too many screen jockey bets dependent on cut?

      • I meant that as the gold price goes up, the AUD tends to go up as well (as the USD falls).
        We don’t often see the gold price rise (with the falling USD) as well as having a falling AUD as well.

      • Stone the Crows

        Times are a changing, the world has had enough of currency debasement, expect that graph to look a bit ‘sharper’ over the next few years !

        Rate cuts…Bah Humbug

        1XAU =1,901.21 AUD

        Another new record high for XAU v AUD

  1. Not making prediction. Mounting an argument. You may be surprised to know that you are not the only person on earth and others like the debate over the short term.

  2. Thought USD better than AUD and acted accordingly. Prefer drinking than gambling. Trade was done straight. Maybe I should continue to drink?