Australian dollar plunges on as commodities break

See the latest Australian dollar analysis here:

Macro Afternoon

DXY fell  sharply Friday night. EUR rebounded and CNY was belted:

The Australian dollar almost reached its 2019 flash crash low but rebounded:

EM forex is getting hosed:

CFTC positioning got shorter again:

Gold hit a new closing low, signalling possible further weakness for DXY:

Oil was firm:

Metals were belted:

Big miners were pulverised. GLEN was smashed with copper:

EM stocks were trashed:

Junk buckled:

Treasuries roared:

Bunds too:

And Aussie bonds:

Stocks were hit again:

The big release on the night was US jobs which were decent:

Total nonfarm payroll employment rose by 164,000 in July, and the unemployment rate was unchanged at 3.7 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in professional and technical services, health care, social assistance, and financial activities.

…The change in total nonfarm payroll employment for May was revised down by 10,000 from +72,000 to +62,000, and the change for June was revised down by 31,000 from +224,000 to +193,000. With these revisions, employment gains in May and June combined were 41,000 less than previously reported.

…In July, average hourly earnings for all employees on private nonfarm payrolls rose by 8 cents to $27.98, following an 8-cent gain in June. Over the past 12 months, average hourly earnings have increased by 3.2 percent.

Headline was solid (charts from Calculated Risk):

Jobs growth is still good:

The unemployment rate very low:

With shadow slack still:

And solid wages growth:

A decent report but markets have moved on. The Fed is perceived to be behind the curve:

With the trade war raging:

Global growth fading:

The European recession spreading to the periphery:

With jobs the next domino to fall:

There’s no end in sight to Australian dollar weakness as the world falls steadily apart.

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.


      • – Indeed, my opinion is that the Multi decade rally (38 years for the US, 28 years for Australia, also Europe) in government bonds (= falling interests rates) is coming to an end very soon (think: days, weeks, NOT months or years)). And US budget deficits of over $ 1 trillion aren’t helpful either.
        – I think that those yields could fall even more. It depends how sharp those yields will fall in the coming days & weeks. (No, not months & and certainly NOT Years) The sharper the (daily) fall in yields the closer we get to the very ultimate end of that mutli decade rally. Compare it to what happened with e.g. gold & silver in 2011.
        – One should look at the futures of the long bond(s). The sharper they rise the closer we’re coming to that ultimate end.
        – That’s my general thesis right now but when that peak will occur (/ has occured) is and remains – of course – very difficult to predict.
        – And yes I must admit: I was wrong before.
        – The fall in commodity prices is / could be a sign that that world wide demand for those things is waning (= recession or worse) and is (more or less) / also tied to the strong USD. (think: USD up, commodities down) I personally expect the USD to rise much more againt MULTIPLE european & asian currencies (EUR, AUD, NZD, …… ) in the coming weeks / months. Keep in mind, total US federal government debt is at USD 21 / 22 trillion and that is therefore a short position of also $ 22 trillion in the USD. And that will be very toxic for commodities.
        – “May you live in interesting times”, right ?

      • – The general idea is that when REAL interest rates are positive or getting more positive then gold will feel downward pressure. Gold will do well when REAL interest rates become negative or more negative.
        – In that regard, rising (REAL) interest rates will be – indeed – toxic for gold & commodities in general.

  1. St JacquesMEMBER

    A few years ago, when the Pacific Peso dived to these levels, I was shocked, not that it dropped so low but that it happened so quickly. Not this time. Not at all.

    Clearly the problem is a lack of faith and this is a test. The ministerial prayer team needs to work harder: MOAR GIBBERISH !

  2. St JacquesMEMBER

    Fortunately our wise, far sighted leaders, who really do care so much for the citizens of this nation, saved the car industry. It will now help reboot the sophisticated end of our industrial sector….oh s#*t….

  3. Think you’ll see the AUD bounce out of here
    Seems good buying under 68c
    Market is a little short too
    DXY just at this point seems short term weak
    Nothing much makes sense
    Also quite a quick move down
    I’d be positioning long AUD
    So if you do,get a bounce in AUD and US shares get sold off H2 you’ll,really see ASX hammered lower
    Aggressive buying of Aussie bonds from offshore might put a base under AUD here
    Longer term agree but nothing goes in a straight line
    Think Bill Evans is right 66 end of year but maybe another look above 70c first to clear a few shorts
    Don’t say with huge certainty but bounced out of 67s very quickly
    I’m glad I’m not an analyst these markets are very hard
    Bit like betting in cup week in Melb in nov

    • Very difficult to forecast in a world where, as a result of Zero rates, everything is worth infinity and nothing at the same time.

      • If the Fed starts an easing cycle, the USD will fall and gold will rise. A falling USD will support the AUD.
        Obviously, if the Fed does not embark on an easing cycle but simply makes 1 or 2 “adjustments”, then the USD will remain strong and will probably strengthen.
        Regardless, bond yields will continue to fall with the weakening world economies.
        It is that straight forward.
        The hard part is trying to determine how many times the Fed will cut rates.

      • St JacquesMEMBER

        Didn’t the previous RBA High Priest say that housing would float the erkonomie over the crevasse? Obviously you have a faith issue. On yer knees sonny!

      • Flawse
        If AUD was an equity you’d short the sxit out of it but it’s not
        I’d be cautiously getting long AUD and that maybe means you can stay long AUSSIE bonds
        That’d be a great play for offshore funds to be long Aussie bonds and take profit at a higher AUD
        I think US equities will get heavily sold off H2 and I want to re enter US shares of we have a higher AUD it would be a bonus
        It’s too hard to guess money things.
        It was meant to be many things but money 💰 things probably better

        I was thinking last night I might have a break from guessing

        Wouldn’t mind some time on the Mediterranean Greek islands maybe Italian Coast and leave this to you guys, maybe spend a few of my USD on a few beers n the islands 🌴 in Europe

      • The Traveling Wilbur

        And as the RBA would say: We will do whatever it takes. We will cut to infinity and beyond if we have to.

    • @bcnich. I am aligned with you on the general idea that there is a bounce-back coming for the poo after last week’s plunge. Currencies seem to work that way (and unlike shares, they rarely go to zero). Charts say yes. However, I would be cautious about going long the poo right now because sentiment. By all available measures, the ratio is about 85% traders long AUD/USD vs 15% short. Sounds encouraging, but that actually means there are an awful lot of traders long AUD and one day they will have to close those positions, resulting in a lot of AUD coming onto the market with profit-taking if it goes up. This makes it harder for a recovery, it will be slower if it happens than the plunge was. Likewise, if there is a shock, there are a lot of traders who will be wanting to get out of positions ASAP. Put these things together and you have increased volatility on the downside and reduced on the upside. However, I have no data on the actual number of open positions vs. average. There is always the big unknown of traders who are waiting with nothing going right now (i.e. me). This can distort the long/short ratio