Australian dollar smashed by booming US consumer

DXY was stable as EUR firmed and GBP fell:

The Australian dollar is in free fall across the board:

Gold was strong approaching the FOMC:

Oil too:

But not metals:

Miners were mixed:

EM stocks sank:

But junk was OK:

Treasuries were bid:

The bund curve flattened:

Aussie bonds were strong:

But European stocks were belted and US wilted:

US data was rock solid. Leading us off, Conference Board consumer confidence surged:

The Conference Board Consumer Confidence Index® rebounded in July, following a decrease in June. The Index now stands at 135.7 (1985=100), up from 124.3 in June. The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – increased from 164.3 to 170.9. The Expectations Index – based on consumers’ short-term outlook for income, business and labor market conditions – increased from 97.6 last month to 112.2 this month.

“After a sharp decline in June, driven by an escalation in trade and tariff tensions, Consumer Confidence rebounded in July to its highest level this year,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers are once again optimistic about current and prospective business and labor market conditions. In addition, their expectations regarding their financial outlook also improved. These high levels of confidence should continue to support robust spending in the near-term despite slower growth in GDP.”

And why not? The US consumer loves a booming stock market:

Housing markets are still solid with rate cuts flowing anyway:

Pending home sales continued to ascend in June, marking two consecutive months of growth, according to the National Association of Realtors®. Each of the four major regions recorded a rise in contract activity, with the West experiencing the highest surge.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, moved up 2.8% to 108.3 in June, up from 105.4 in May. Year-over-year contract signings jumped 1.6%, snapping a 17-month streak of annual decreases.

…All regional indices are up from May and from one year ago. The PHSI in the Northeast rose 2.7% to 94.5 in June and is now 0.9% higher than a year ago. In the Midwest, the index grew 3.3% to 103.6 in June, 1.7% greater than June 2018.

Pending home sales in the South increased 1.3% to an index of 125.7 in June, which is 1.4% higher than last June. The index in the West soared 5.4% in June to 96.8 and increased 2.5% above a year ago.

Wage growth is good and living standards rising with real income growth:

Personal income increased $83.6 billion (0.4 percent) in June according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $69.7 billion (0.4 percent) and personal consumption expenditures (PCE) increased $41.0 billion (0.3 percent).

Real DPI increased 0.3 percent in June and Real PCE increased 0.2 percent. The PCE price index increased 0.1 percent. Excluding food and energy, the PCE price index increased 0.2 percent.

Energy is cheap, cheap, cheap!

It’s all pretty much the opposite of Australia and its beleaguered dollar.

Adding downside for the AUD was Trump trade tweets as talks resume, at Bloomie:

President Donald Trump lashed out at China for what he said is its unwillingness to buy American agricultural products and said it continues to “rip off” the U.S., just as the two nations resumed negotiations in Shanghai following a three-month breakup.

“China is doing very badly, worst year in 27 — was supposed to start buying our agricultural product now — no signs that they are doing so,” Trump said Tuesday on Twitter. “That is the problem with China, they just don’t come through.”

Departing the White House later for Jamestown, Virginia, Trump told reporters “we’re either going to make a great deal or we’re not going to make a deal at all.”

There’s just no upside and plenty of down for the AUD given:

  • US outperformance and a slow moving Fed;
  • European recession and aggressive ECB by necessity;
  • troubled China on trade war and Hong Kong plus falling bulk commodities ahead;
  • weak Australia on the construction bust leading to more RBA cuts and unconventional policy that has already begun.

The AUD appears headed to new lows through H2.

Comments

  1. Magic pudding economic theory, as attempted in Argentina. AUD to .50 and IR up up up.

      • I know you say that then a few days later the damn thing goes through the roof…..Some miraculous news or Australian govt report comes out and all hell breaks loose with it. I need it to go up so when I ship my money back to the US I dont get killed. It was at .72-.73 when moved and shipped alot of my money over here.

      • LBS, did you get pinged by Austrac and receive a scary letter from the ATO?
        I got one 6 years ago for a transfer I had made into Oz 2 years before that. What a pain in the a#%. Had to prove that it was not foreign earned income but money I had made in Australia and sent over to the US. And that it was the very same money that I sent back here.

        In the meantime, and before I got that tetter, I had sent my money back to the US again and now I’m reluctant to bring the bloody money back, lest they try get their teeth into it.

  2. St JacquesMEMBER

    mmmmmmmmmm just savouring the thought of all those high value “clever” foreign property infestors who jumped through the loopholes left by (cough) “our” gubimints the last 15 plus years, pushing locals out of home owning and even onto the street, now watching their property values being smashed again and again and again by the declining Pacific Peso and wondering where it will all end. Well u little greedy bastards, look at ARGENTINA – A ONCE WAS A “LUCKY DUCKY” KUNTRY JUST LIKE OZ IS NOW (but not for much longer) FK U kANTS UR GETTIN WOT Uz DESERVE AND WITH INTEREST – WOT A CRACK UP – KARMA ! HAHAHAHAHAHAHAHAHA !

    • I’m glad you feel better. I’ll feel better when apartment prices are at least 40% down in core logic stats and the aud is below USD.50. Then the syndicates and individuals who haven’t sold but are making heaps of slum Lord renting are finally feeling some pain

      • St JacquesMEMBER

        I personally know of one house already abandoned in a nice eastern suburb, owners gone awol. Some must already be wondering if that 1 % interest rate to buy an overpriced hen house was really the deal of a century they thought it was. What will it look like in a few years when AUD is in the fifties and the great property recovery being engineered by the grubimint/RBA turns out to be as long lasting a fart in a cyclone?

      • MountainGuinMEMBER

        @ St Jacques.
        Keep an eye out for new neighbors. I can see squatting as a growth industry

      • Wouldn’t a squat app be amazing? Put all of these empty houses on it. Talk about setting the cat amongst the pigeons.

      • Mining BoganMEMBER

        Taking note of where most of our new Australians are coming from just maybe a “squat app” might be a tad unwise.

      • There was a house near me that was empty, I was tempted to squat and start renovating it to live in. It had been empty since 2005.

        31 East St Five Dock NSW
        https://goo.gl/maps/NQSm1otxw6kCxMLh6
        https://www.realestate.com.au/property/31-east-st-five-dock-nsw-2046
        Sold in 2005 for $560,000

        It’s now been demolished though..I did a title search and there was a “Chinese” owner name on it. I wondered why someone would buy it and leave it empty for the best part of 15 years..

    • Don’t worry about those “high value clever foreign property infestors” – they can look after themselves. After all, the Moron Side of the Force is a pathway to many abilities some consider to be unnatural…..

      Meanwhile, you may be able to make handsome profits by heavily investing in Deutsche Bank…..

    • Iron ore price remaining resilient. US rate cuts. Brexit uncertainties. European issues and weaknesses. Gold resilient and strong. AU government numberwang on point and arguably reading at the highest BS/manipulated levels in history (RBA, ABS) – but historically trusted relative to rest of world.

      • Les your arguments are a list of known factors about the present, not the future. But let’s look.

        Your first point ok – but where is iron ore going from here?
        Second point already priced in.
        All remaining points are not AUD positive, they are either AUD negative or neutral.
        Finally, the last point – numberwang – sorry mate. Conspiracy theories are not good enough. Added to the fact that actually the RBA would like a lower AUD. So… nopey.

      • Agree that RBA would like a weaker AUD. But, it’s almost now entirely out of their control. They lost control a while back. And, their main objective now is ass-covering and making it look like the Aussie economy is goin’ good! – It trumps everything else. They’re still seen internationally as “credible” and therefore believable.. also.

        Longer term, yes the Pacific peso is in the sh1tter. Not quite yet.

  3. Even StevenMEMBER

    All I can say is that we have a highly leveraged consumer/household sector in Australia. When a recession hits, we will be thoroughly unprepared. AUD will tank sub 60 as the extent of our problems become apparent and RBA forced to get creative.

  4. The Aussie is ranging, within an overlying downward trend. It is at the bottom of the current range, sitting hard against a support level for this cycle. Barring shocks (non on horizon) it will go up again to about .70, sometime soon-ish, before continuing it’s slow, wobbly grind lower. This is not investment advice (but you could do worse)…