Australian dollar falls away as bonds boom again

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The Australian dollar’s overnight bounce has eroded through the day as Trump impeachment fears fade:

XJO is down modestly:

Bonds are bid again:

Dalian has flatlined:

Big iron is weak:

Big oil too:

Big gold strong:

Big banks are soft as rate cuts present mortgage book growth but falling margins:

Big realty always likes the RBA chainsaw:

A snippet from UBS tells the tale:

On housing, Lowe noted a “stabilisation of the housing markets in some cities”. In Q&A, when asked about rising housing prices, he responded that “I’m not particularly concerned about that” and “we could have a period of rising housing prices, because construction activity is slowing while the population is still rising quite quickly … from a monetary policy perspective, it’s not an issue at the moment, it would become an issue if credit growth accelerated rapidly, but I see no signs of that at the moment”. This is consistent with our view that the RBA could cut the cash rate, but then implement macroprudential after, if home loans & price growth are stronger than desired.

Hence, we still expect the RBA to cut 25bps in October, & again in Feb-20 & May-20 to 0.25% amid rising unemployment & further global central bank easing. In our view, Lowe’s speech reduced the risk of an ‘on-hold’ in October, but if the RBA does hold, a cut in November is clearly still very likely.

The only question now it where is the terminal rate. I will say 50bps because the banks will force their margins concerns onto it. Therefore, Aussie QE looms looms by mid-2020 as the developing terms of trade income shock drops the next anvil upon Australia.

UBS has a price target of 50bps on the ten year!

About the author
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.