Australian dollar bear market rally roars on

See the latest Australian dollar analysis here:

Australia dollar tumbles as US property booms

DXY was flat, EUR up and CNY down:

The Australian dollar is on fire versus DMs:

Keeping pace with EMs:

Gold was hit again:

As oil took off:

Metals were less interested:

Miners took off:

Em stocks are still running:

As junk recovers:

Treasuries were belted:

The bund curve was nuked:

Aussie was soft:

Stocks went nowhere:

Westpac has the wrap:

Event Wrap

UK July GDP and production data beat expectations. GDP rose 0.3% m/m vs the median forecast of 0.1%, with services particularly strong, and industrial production rose 0.1% m/m (vs median -0.3% m/m). However, over the three months to July, GDP was 0.0% while production was -0.5%, better reflecting the headwinds of Brexit uncertainty and slowing global growth.

The UK bill that stops a no-deal Brexit on 31 Oct became law. The law forces the Prime Minister to ask for a three-month Brexit delay if he hasn’t achieved a deal by 19 Oct. PM Johnson may call for a snap election, but he needs the votes of 2/3 of MPs and last week he was well short of this.

Event Outlook

NZElectronic retail spending is expected to have risen 0.5% in August, leaving a modest picture of household spending. REINZ housing data may be released.

Australia: Aug NAB business survey will be an early gauge on whether tax offset payments and RBA rate cuts are stimulating consumer spending. Q3 AusChamber-Westpac survey is released.

China: Aug CPI and PPI data are released.

UK: Jul ILO unemployment rate is expected to hold at 3.9%.

US: Aug NFIB small business optimism is anticipated to edge down from 104.7 to 103.5 – a still elevated level. Jul JOLTS data will provide detail on the labour market.

It’s reflation hopes versus political fears. The drivers of the former are obvious in central bank easing worldwide. Europe added some fiscal hopes to that, which flogged bunds, via Reuters:

The euro rose on Monday after a report that Germany may boost fiscal stimulus increased hopes that governments will act to boost growth in the region, though expectations of further central bank easing kept a lid on gains.

Germany is considering the creation of a “shadow budget” that would enable Berlin to boost public investment beyond the restrictions of constitutionally enshrined debt rules, three people familiar with the internal discussions told Reuters.

Government officials are flirting with the idea of setting up independent public entities that would seize the historic opportunity of zero borrowing costs and take on new debt to increase investment in infrastructure and climate protection, the officials said.

Let’s see what the ECB delivers this week. It was positioned for a bazooka but has been talked down to a pop gun:

But the four horseman of political shock risk are still riding. A writhing Brexit rolls on, at the ABC:

The British Prime Minister Boris Johnson’s government has confirmed it will suspend the UK Parliament until October 14.

Mr Johnson’s spokesman James Slack said Parliament will be prorogued at the close of the day’s business on Monday evening (local time).

Mr Johnson has said he will take Britain out of the European Union on October 31 even without a deal, but Parliament has passed a bill that would force him to seek a delay from the EU if no deal has been agreed.

The bill has been given a royal assent by Queen Elizabeth II, hours before legislators were set to reject Mr Johnson’s demand for a snap election to break the political deadlock engulfing the Government.

Mr Johnson had previously said he would send British MPs home sometime this week.

The suspension limits Parliament’s ability to block Mr Johnson’s plans for Brexit.

Clear as mud.

The second horseman, Hong Kong, was not encouraging as Li Ka-shing chimed in, at Bloomie:

Hong Kong’s richest man urged the government to “have mercy” in dealing with the unrest that has rocked the city this summer, describing recent months of protests as its worst crisis since World War II.

Li Ka-shing, whose conglomerate is among Hong Kong’s most dominant business empires, on Sunday called for reconciliation between the government and protesters as another weekend of demonstrations turned violent.

“If it continues, it will be very bad, and I am concerned,” the 91-year-old said during an event at Tsz Shan Monastery, a Buddhist temple which he helped finance. “We hope young people can consider the big picture, and government leaders can also have mercy on the masters of our future.” A spokesman for CK Hutchison Holdings Ltd., Li’s flagship ports-to-telecom conglomerate, confirmed his remarks.

There was little new on the third horseman, the trade war, and that is encouraging in itself. But, as JPM notes in a new index, the intensity of market moving tweets is increasing:

Finally, the fourth horseman, oil, jumped as Saudi did the usual:

Saudi Arabia reassured oil markets on Monday that the oil policy of OPEC’s largest producer and de facto leader wouldn’t change radically under its new energy minister, who also appeared to signal that further cuts could address the global glut.

According to AFP, Saudi Arabia’s newly appointed Energy Minister, Prince Abdulaziz bin Salman—the first royal to hold the oil minister’s post in the Kingdom—said at an energy conference in Abu Dhabi on Monday:

“Cutting output will benefit all members of OPEC.”

But there is nothing it can do about fading global growth, demand and the seasonal weakness ahead.

We’re still in a bear market rally for the Australian dollar, to my mind.

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.

Latest posts by David Llewellyn-Smith (see all)


  1. Think that may be it, 6680 to 6880, nice short squeeze rally, little sell off in USD and rally in GBP, stocks running out of steam, nice rally in oil, any short term specie shorts have most likely thrown in the towel
    Think we may be close to the next move in USD has higher
    Gold market looks long, think graham said 1500 level, if that breaks as USD goes higher think trap door will open up on gold to get belted lower, AUD OIL etc could be ready for next down leg along with stocks and Euro. We needed all these moves to set up the big dollar rise, think it’s close now for DXY to break through 100 and Euro & GBP towards parity. Tony Gold won’t be moving with USD, GOLD is a commodity like the rest of them, all commodities are going south when the USD finally breaks up, think we are on the cusp of the BIG, deflationary financial crisis
    Probably taken a few longs out in Aussie bonds 1.10% seems to be holding maybe 1.20% resistance to retest 0.80/85 on 10 year, if that breaks straight to 0.50%
    What are we mid Sept coming into October, Q4, the carnage is about to start, be prepared for the next 3 to 6 months – we’ve been in the calm before the storm

    • Gold has been very stretched so due a good correction. Support around $1460 and then next support around $1350. Hopefully it hits the latter — will be a phenomenal buying opportunity. The USD won’t run far IMO: US rates are going to zero (again) and their deficit will get significantly worse.

      Trump won’t tolerate a strong dollar anyway — election in November 2020 will be grievously undermined. Contrary to popular opinion there is no shortage of Dollars – it’s just a function of whether they’re being hoarded or lent at any given time (risk off / risk on).

      I still think lower dollar, higher bond yields is what the future holds. Short-term, who knows.

      • Dom, yes gold looks like testing 1460/70 like you say, I disagree strongly re the USD, once 100 DXY breaks think we are on the way to 120DXY
        Think Euro and GBP will drive DXY much higher over next few months
        Think Euro will be under parity by Xmas and that will ignite the rumours of The Euro breaking up.

  2. The Fed cohort are doing their best to straighten out the yield curve inversion but there are other recession harbingers they will find harder to manipulate to regain confidence…….not that it is beyond them to run empty trucks around the US to make it look better. Freight already worse than 2015

    Credit take up is all that matters in these highly financialised economies………..finances mean nothing, they are already farcical, it is all about expectations.

        • The Great Financial Deleveraging and the start of the next Great Depression, that starts Q12020.
          What happens in that
          European bank collapses
          Surging USD.
          Major sell off in global equities and ASX, I like equities lower
          Commodity bust
          EM currency crisis
          Surging bond prices yields lower until that market busts too
          Not yet but European Sovereign bond crisis, pushing Euro yields to where they should be as Euro breaks up and pushes AUSSIE home loan rates to 5 to 10% and the great Australian property crash by late 2020 into 2021 but Aussie bond yields and RBA cash rate zero and what ever those idiots in gov RBA do re QE.

          It’s not 18 months away anymore it’s 3 to 6 months now

          Australian banking rescue package by end of Q1 2020, March 31

          • I have no debt but if I did and I wanted to hold my home, I’d be locking in fixed for part 3 years part 5 years small part variable with offset.
            Think we will see 2.70/80 around fixed maybe lower but don’t be too greedy as the cash rate goes to zero and bond yields go negative, think you’ll get a chance to get a very good fixed rate before home loan rates go much higher next year, as property market crashes banks will raise rates further and shorten loan term

            All the positive feed back loops you get on the way up just reverse on the way down, it’s just how life works

          • Think cash physical notes will trade at premium on the black market, gets some cash, small notes 10s 20s 50s before the scumbags stop you taking it out of the bank

          • I had lunch with 3 guys that were hard core bears, they’ve thrown the towel in, G Minack, DLS HnH, even Albert Edwards have partly thrown the towel in, only the hard liners left now

          • Tony
            Euro won’t be broken in 1 year
            Start of it
            2/3 years I’d say
            You’ll hear market speculation as these things unfold over next year with Euro falling
            Let’s see how this plays out over next 3/6 months

    • You mean “un-invert” it?

      The recession signal is not the initial inversion — it’s the steepening AFTER the inversion that signals imminent trouble.

      If the Fed thought any of this was the ’cause’ of recession, they would be doing everything in their power to keep it inverted.

      Of course, the curve is not the cause, it is the signal, so the Fed has no control over anything.

  3. proofreadersMEMBER

    More economic gobbledygook from RBA ivory-tower economists reported in the AFR today effectively blaming Baby Boomers (more particularly fixed-interest-income-reliant retirees) for low interest rates when in reality, it it the profligate money printing and debt creation worldwide and Straya’s gold medal housing price bubble (that has to be preserved at any cost) that has meant interest rates have got so low.

    One feels that the RBA has a deep and abiding detest for fixed-interest-income-reliant retirees and other savers but they’d probably love franking credit excess refund leaners.

    • Strewth!!! You’re lucky Skippy isn’t here!!! Using the words ‘money printing’ damns you to MMT hell!!!

      • proofreadersMEMBER

        So be it. I guess you’d have to wonder what fairy tales are taught in an economics degree at uni these days.

        • Amen to that!!!
          I know what it was like 50 years ago (already totally removed from reality) so the mind boggles at the absurdity that is going on these days.

    • It really is getting hard to tell what the RBA’s – or anyone else’s for that matter – game is any more. It’s like they’re pursing an end that no longer exists for a cause that is utterly futile. The Government is the same. When was they last time you remember them announcing anything of material consequence for the nation?!?

      • +10
        There is probably nothing they CAN say anymore. Any attempt to right this ship is likely to sink it.
        The answers lie back in time.

        • I’d rather they sailed this broken old square rigger towards shallower waters before she goes down!!!

          • You ain’t gunna make it! They turn her back into the wind She’s goin’ dooowwwwwnnnnnnnn!
            The cap’n just wants to go out looking like a winner. Put up a few more sails!
            (Good metaphor BTW) 🙂

          • Perhaps a more recent analogy is the AF flights where the pilots thought they were going up but the plane was going straight down. But, scumo has god on one shoulder and the PCA on the other whispering you are right and miracles do happen😢

      • Well, what do you know? I have a confession to make. It just so happened that I had a chance encounter with the upper echelon of the RBA a few years ago. All I did was whisper “Remember, concentrate on the moment. Feel, don’t think. Trust your instincts.”

        Alas, my Force is no longer strong and I am afraid I cannot undo my mind trick. Sorry!!

    • The issue that ALL central bankers are having is that market prices are not behaving anything like their models would suggest and they are now flailing around for excuses for why the world just isn’t going in the direction they predicted it would.

      Perhaps the theory that went into constructing their models is faulty in the first instance? Noooooo, perish the thought 😉

    • The game is the same in many places, sound familiar? :

      “For the vast majority of young people in HK, buying their own home is an impossible dream. Even if they could afford something, it’s likely to be not much bigger than a parking space. That’s not an attractive proposition for someone wanting to raise a family.

      There is a long-standing myth that the HK economy is a paragon of laissez-faire free enterprise. Nothing could be further from the truth. The HK economy is comprised of a handful of cartels and monopolies, tightly controlled and micromanaged by the so-called government, which is in fact an enabling body for the clutch of plutocrats who control the city and its economy. Six men in HK have more than USD100bn between them, while 25% of the population live below the official poverty line.

      The banks need to keep increasing the size of their loan books. The government owns all the land and keeps a stranglehold on new supply for home building. Between them, they ensure that demand always exceeds supply; so prices (and mortgage debt) keep rising. An infinite supply of labor from mainland China keeps a lid on wages. It’s a lose-lose situation unless you are already on the property ladder.

      Quality of life in HK is lousy. There is little work-life balance for most people. Working culture is toxic. Management culture is based on bullying and intimidation.

      The only thing surprising about the current unrest is that it took so long.”


      “Hong Kong is the money laundering hub for CCP corrupted officers.”