Australian dollar crushed to post-GFC low as Fed disapoints

See the latest Australian dollar analysis here:

With friends like Phil Lowe, AUD sure doesn’t need enemies

DXY broke out last night and is running. EUR was smashed:

The Australian dollar was crushed to post-GFC lows across the board:

Gold held on:

Oil too:

Metals were mixed:

Miners hammered:

EM stocks belted:

High yield was mixed:

The Treasury curve collapsed:

And bunds:

Aussie bonds rampaged on:

Stocks hated it:

US data was OK too with the ADP rebounding:

Private sector employment increased by 156,000 jobs from June to July according to the July ADP National Employment Report®. … The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.

…“While we still see strength in the labor market, it has shown signs of weakening,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “A moderation in growth is expected as the labor market tightens further.”

Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth is healthy, but steadily slowing. Small businesses are suffering the brunt of the slowdown. Hampering job growth are labor shortages, layoffs at bricks-and-mortar retailers, and fallout from weaker global trade.”

However, the Chicago PMI gave a bad lead on the ISM:

The Chicago Business BarometerTM, produced with MNI, eased further to 44.4 in July from 49.7 last month, the second sub-50 reading in 30 months.

The weakness in the Barometer observed in Q2 continued into the current quarter, with the latest outturn making it the weakest start to Q3 since 2009.

…This month’s special question asked firms about their views on the US economy’s growth in the second half of the year. Two in five firms expected the economy to see slower growth than currently, with some holding tariffs responsible for the slowdown. The majority, at 46%, did not expect any change while only 14% expected the economy pick up.

“Sentiment faded further with firms facing weakness across the board. Global risks, trade tensions, slowdown in demand and sombre growth expectations, all jeopardize business conditions. Firms are not panicking yet, but the latest report isn’t adding to the cheer. The above risks lend weight to a monetary easing approach by the Fed, albeit a gradual one,” said Shaily Mittal, Senior Economist at MNI.

There is no doubt that the industrial economy is slowing:

It’s all about the consumer now.

The dovish Fed cut 25bps to support her but it just can’t get dovish enough for reflated markets:

Information received since the Federal Open Market Committee met in June indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent. This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

The Committee will conclude the reduction of its aggregate securities holdings in the System Open Market Account in August, two months earlier than previously indicated. Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against the action were Esther L. George and Eric S. Rosengren, who preferred at this meeting to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent.

The Q&A was worse for markets, espeically this:

“What we’re seeing is that it’s appropriate to adjust policy to a somewhat more accommodative policy over time,” Mr. Powell says, adding “it’s not a long cutting cycle,” as is common in a recession.

Time to remind the Fed who’s boss.

The Australian dollar is on a hiding to nothing right now:

  • 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.

David Llewellyn-Smith


  1. Golden Trumpet

    Dollar is in a line straight down now. Previous low is 63 cents in 2009 – then its all the way down to 48 cents.

    At 48 cents you can expect petrol (now 100% imported) to hit $3 a liter which would make travelling from Geelong to Melbourne for work about $150 round trip in your SUV – $750 / week.

    Now add that onto everything…….

      • Mining BoganMEMBER

        Well yes, but that time has given me the chance to improve and refine my lecture series on how to live a minimalist/povo lifestyle. Can’t wait to see Nathan Birch, The Kouk, various family members, The Pascometer, that clown baker guy down the shops with the AMG and Reusa in the front row listening attentively.

      • 68 is closer to 48 than 110 or even 94 to 98
        I think you will be AUD at 48, and even 38 in a couple of years time.

      • Golden Trumpet

        Petrol is not directly related on a one to one ratio with currency. Everything in the supply chain which requires petrol adds its own increase in petrol cost to the cost of itself – its a multiplier effect. Hence lower currency adds a much higher cost to petrol.

        So yes – the actual dollar cost of the petrol on the global market is one to one – the import, transport, delivery, charges are all much higher in costs (petrol). Not only that but the inflationary effect of everything else adds pressure.

        Or were you struggling with 5×150 ? Which seems just as plausible given your sophomania.

      • GT the global economy is weak and getting weaker. So oil prices are also likely to fall as demand craters – not sure if more or less than the AUD but I can’t see a doubling in AUD petrol prices.

      • Golden Trumpet


        If petrol is $1.50 at 80 cents – what is it at 40 cents ? This is what tradeflation is.

        And as for oil prices what do you think the effect of the US bombing, sanctioning in – Yemen, Libya, Iraq, Iran, Syria, Russia, Venezuela – every major oil producer on earth except their own (Saudis are theirs) ?

        What’s that you say ? Destroying supply in an inelastic demand market forces prices higher ??
        What else did you say ? Carrier diplomacy ?

        Whats that Libya was the largest supplier to Europe, Venezuela was amongst the largest suppliers on earth and Iran still has the largest reserves ?

        Its almost like – an artificial price mechanism in the shape of MOAB.

        Demand is irrelevant.

    • Golden
      I think you are right in time, you will see fuel at $3 to $5 litre maybe higher, people cycling, walking, car sharing etc.
      But think you’ll see oil much lower first as we head further into the deflationary financial crisis as USD moved higher.

      • Golden Trumpet

        The United States has cornered the entire global oil supply – not being rude but are you aware of global politics ?

        The transition to electrics is well and truly underway – if global oil demand drops the prices will simply remain the same – if required the Riyal is pushed up (go look it up and compare it to oil price trends – particularly 2009 and oil to $150 / bb).

        The US will be milking the last of the oil age wealth extraction for every penny. Only a fool would think otherwise. Its part of the reason why China is so aggressive in moving away from ICE cars, buses etc and now dominates on an insane level electric vehicles.


      • No problems GT, if you need to buy more oil, as long as it’s the right level, I am happy to sell to you and go short.
        On the other side, I am happy to admit i am wrong.
        Think oil will struggle with a strong USD

    • @GoldenT. Reference way back to your original claim above AUD is on a course straight down (paraphrased as I didn’t copy and paste). Have you ever traded currencies (or anything, for that matter)? Nothing goes in a straight line for a long time.
      H&H says it will be lower by end H2. That’s probably a pretty fair guess, unknown shocks or iron mine disasters discounted. But it will not be straight down from here. It will go thru normal fluctuations of sentiment as time goes by and news comes available.
      The Fed just cut by 25bp, exactly as priced into the market already. They (i.e. Powell) have indicated that this is not to be interpreted as the start of an easing cycle. The Aussie took a small, inconsequential hit, because the DXY took a big lift (at the risk of stating the obvious, this was because there was a marginal expectation of a 50bp cut, so 25bp was relief to USD holders and a boost to the USD).
      Right now, the AUD is very low, at the bottom of it’s recent cycles. The next significant event for the AUD is next week’s RBA interest rate decision. Most likely, they will hold. Nothing to see here. What will happen then is probably a repeat of the established sentiment-driven ranging. Therefore, I would expect the AUD to go back to near the top of its recent range (i.e. 0.70) sometime within the next month or so. Then the cycle will repeat up and down until there is a breakout on the down-side. At that time, you do not want to be long AUD.
      So, if you are on a long term strategy, then AUD down seems reasonable, as H&H says. However, if you are actually trading the Aussie (AUD/USD pair) then I thing there’s a very good chance that the next move is up. This is why I love trading currencies, you can make money on the same increment again and again as it ranges, whereas buy-and-hold strategies only give you the one bite at the pie.
      Requires nerves of steel and high tolerance for sleep deprivation, ‘though

  2. China PlateMEMBER

    “The Q&A was worse for markets”
    Fair dinkum what were they expecting
    Yeah we are going to zero and it’ll be done this side of Christmas so get out there and have a go

    • lol – they actually did expect that. People are just delusional these days. I still expect FED to cut one more time this side of Christmas as Trump will come swinging. Trump wants USD to go lower for right or wrong reasons he wants it and he will tweet the FED into cutting.
      Also, I do expect Trump to impose more tariffs on China.

    • The Beetrooter Advocate

      No need to tell Americans to have a go.

      They’re all out there doing that already.

  3. All. central banks will continue to disappoint because there’s nothing they can do now to stop what’s coming

    • they left IRs too low too long. Now everyone is hooked on too much debt. CBs can’t hike as everyone with debt will default. And everyone has too much debt. CBs can’t cut as there is nothing to cut (FED will get there inside 12 months) and more cuts will send Gold above $3k (possibly $5k) and destroy all fiats.
      The elites can’t reset the system either as Russia still stands tall and proud.
      Now what?

      • Maybe they will figure out that throwing welfare money at poor people just means… more poor people. That having a refugee program just means… more mouths to feed in Europe for $5/meal, instead of in Africa for $0.50/meal. Cut taxes heavily on working families – end the social security system completely and phase out pensions for anyone currently aged under 40. Implement a flat income tax.

      • Nikola your comments are always insightful but this Russia thing is a bit off the mark. The Russian economy is highly dependent on oil prices and in a global recession those are going through the absolute floor. Time to stop reading so much Russia Today, it’s warped in the head!

      • Nikola
        I agree on the debt. holding interest rates at zero and largarde thinks -5%, the arrogance to kill retirees.
        Lagarde will be going under with the ECB.

        I have to respectively disagree on gold, think you’ll see much lower with all commodities over next 18 months.

        Don’t think the FED will need to cut to 0, but RBA will be zero by XMAS. Think you’ll possibly see the AUSSIE USD 10 year spread at -150+

        Think you’ll see the Euro at parity or under by Xmas and GBP will go down the gurgler with the Euro. UK should do a hard brexit, but think opposition is growing and most want to stay in Euro now, and that will be the downfall of UK. Think BOJO might get thrown out too. Maybe that labour communist Corbyn might gain support and sentiment will move stay.

      • Trust is gone….that is the basis of all finance. A new Iron Curtain is going up imposed from outside around the Eurasian heartland. After the tumults to come, whether reset or depression or war , if any trust can be re-established the Bancor beckons Like all of Keynes’s ideas there is a lot more to it than the headlines

      • Arrow2 – I am aware of the oil risk for Russia but it I think the west (i might be wrong here and I def don’t have enough data to be sure of what I am saying) puts too much emphasis on Russia’s dependence on oil. The west is basically putting Russia in the same basket with Saudi Arabia.
        They literary produce everything they need and barely export anything outside oil, gas, platinum, aluminium, gold and wheat due to US/UK sanctions for “meddling” in US elections. Rest of Russia’s industrial complex will not suffer much due to EU and US falling into depression.

        I would like to be proven wrong but I want to see how Russia’s economy will fare compare to most western countries if we (the west) go into serious recession and especially if the elites have to reset the system.

  4. The Beetrooter Advocate

    Yield Inversion. Yield Inversion!

    The Aus 5yr yield is now 0.003 **below** the Aus 2yr yield.

    Welcome to Europe y’all. Please use the white lane for US passport holders.

  5. Mining BoganMEMBER

    I just heard on the wireless someone talking about the fed caving to political pressure. Caving. Political pressure. It occurred to me that I’ve heard that many times about other countries. Caving. Political pressure.

    Yet I can’t recall that ever being said about Straya’s RBA. Is there some kind of rule saying the MSM shouldn’t? And RBA always autocorrects to BRA…is that because it’s full of boobs?

    • well RBA did not cave.. RBA literary droped the pants and bent over. And Scumo had a go.

      Edit – Phil will never be the same again.

  6. A comment I saw on reddit summed it up best:

    The Federal Reserve is caught in a liquidity trap. They are not alone in this trap, every central bank in the world has conspired together to create this trap, and they don’t appear to be looking for a way out of it.

    Low interest rates, as a policy tool, are meant to spur economic activity and investment. But, this tool does not have the ability to create economic activity, all it does is bring future growth forward. It is very similar to Physics, energy cannot be created or destroyed, you’re just moving it around.

    So, around the world central banks have embarked on Zero Interest Rate and Negative Interest Rate Policy (ZIRP AND NIRP). They have brought all possible economic activity forward and created an economic environment that is unable to function without extremely low interest rates.

    This latest move by the Fed has made it clear that Stock and Bond markets are unable to function with interest rates above 3%. So, they have two choices:

    Acquiesce to this reality and begin lowering rates back to zero, this buys them time in the hopes that something magically makes the eonomy rocket higher out of this mess.

    Continue normalizing rates and force out the weak hands from the market, cleansing the system of actors that leech off of low rates without contributing anything to the economic health of the system.

    The Federal Reserve has chosen option 1.

    • Lol. This counts as “good”? I could have told you all this 10 years ago.

      Pfh and flawse could’ve told you this 20-30 years ago.


      • don’t be harsh now. it is in line with your thought.. plus cut some slack to whoever wrote this.. you just don’t know if this person did not worked this out 40 years ago.. well before you and flawse.

      • Golden Trumpet

        Mate there is no one on the planet who does not know what the point of this post is –

        “The government can’t raise rates because debt”

        Like seriously, how full of yourself can you be.

      • Those kids from Jersey had it nailed 30 years ago too….

        Low rates is like bad medicine
        Bad medicine is what I need, whoa
        Shake it up just like bad medicine
        There ain’t no doctor that can cure my disease

        Bad medicine

        I ain’t got a fever, got a permanent disease
        And it’ll take more than a doctor to prescribe a remedy
        I got lots of money but it isn’t what I need
        Gonna take more than a shot to get this poison out of me

      • I love Bon Jovi. Went to see them in Sydney when they were here last. I reckon we need more of that bad medicine to fix thing.

      • Gav
        Think you’ll get your chance to buy ASX around 6,000. H2 will be very interesting.

    • Golden Trumpet

      Amazing post /s

      Governments cant raise rates because of massive debt through quantitative easing – genius I tells ya ! Why didn’t anyone think of this amazing analcyst.

      Here’s an even better one – without a rise in wages global consumption will collapse. With a rise in wages inflation will require a raise in rates crushing the debt loads of corporations.


      The increase in global debt from $125 trillion at the GFC to $260 Trillion barely touched the workers – it was a massive increase in income inequality. But debt burdens – with interest – remain. Therefore prices are continuing to rise – particularly essentials which are being stripped from inflationary measures as the books are cooked.

      Eventually – everyone just riots – see France, Italy, Spain, Occupy Wall St, and soon Australia.

    • It’s like going on a camping trip with a week’s worth of food and eating it all on the first day. We are f#cked.

      • The Beetrooter Advocate

        It’s like going on a camping trip with a week’s worth of food and eating it all on the first day and then spending the next day telling the kids it will all be fine while secretly deciding which one will be eaten first. Some of us are f#cked.

  7. If you look at Goldman’s financial conditions index it’s pointing to a sharp rebound in the PMI’s.

    The June forecasts projected only one cut and a small discount risk premium
    Their forecasts of activity and inflation were consistent with a Taylor rule saying only one, maybe two
    GDP is on track to grow >2% this year consistent with a. Slide in unemployment to maybe 3.2-3.5 and output >potential consistent with a rise in aHE to maybe 3.5-3.8
    Core PCE is weak but base effects will likely see it back to 2-ish by early next year

    And people were surprised ????

    I’ve been telling my clients for a week to expect disappointment

    • Peter, the FCI is one risk off event away from tightening. Since Dec ’18, the GS FCI has been easing in the face of deteriorating PMI’s.

      USD continues to power on.

      Trend in GDP growth is to the downside.

      PMI’s continue to look weak.
      The US is catching down to the rest of the world:

      The Fed are just beginning.