Australian dollar roars as Beijing blinks on Hong Kong

See the latest Australian dollar analysis here:

Macro Afternoon

DXY got the treatment last night as Beijing blinked on Hong Kong, nicely illustrating the extent of the safe heaven bid under it. EUR and CNY rebounded:

The Australian dollar roared against DMs:

But could not keep pace with DMs:

Gold is a rocket:

Oil was strong:

Metals too:

Miners took off:

And EM stocks:

Junk was better but less excited:

Treasuries were bid, oddly:

Bunds sold:

Aussie followed:

Stocks took off:

The globalists are partying as they strike back. First in Hong Kong where Beijing withdrew its extradition bill:

Authorities had to do something as the economy cratered:

Almost as fast as government credibility:

Whether this is the end is highly debatable but it is a major concession and should help divide middle classes from more radical elements. Only time will tell. Polling is not encouraging:

Secondly, the Hard Brexit was mitigated by Tory chaos, at the FT:

Rarely has a UK prime minister’s strategy imploded so rapidly, and so spectacularly. In two days, Boris Johnson has become the first premier since the Earl of Rosebery in 1894 to lose his first parliament vote, and seen MPs back a bill to force him to take a course he has categorically ruled out. He has collapsed his own working majority from one to minus 43 — by backing himself into a position where he was forced to sack 21 rebels, including two former Conservative chancellors and the grandson of his political hero, Winston Churchill. He has led his party to the brink of a historic split. His plan to strike back with a snap election is hostage to his opponents’ agreement.

Assuming BoJo’s snap election bid is also voted down and a Brexit extension gets up then it will be over to Europe to offer one. Will it? Article 50 still means it crashes out automatically on October 31.

Meanwhile, the trade war rolls on unabated. And the economic fallout of all three intensifies. The US is slowing:

But Europe is still materially worse:

As Germany is hammered by both China and Brexit:

Via its export machine:

In sum, I don’t see a strategic change of direction for the set up for weakening global growth, nor any change in a lower Australian dollar yet.

Progress but no cigar.

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.

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  1. pyjamasbeforechristMEMBER

    lamb’s office says the proposal will be withdrawn with no vote when the LegCo resumes in mid-October. How convenient for carrie and xi that this date in the future is after Beijing’s key anniversary. Leung is “optimistic about its target of resuming operation in mid-October”— Kyle Bass (@Jkylebass) September 4, 2019

    • Yes, all sounds too good to be true, I wouldn’t be surprised if before legco resumes but after the 70yr celebrations, Carrie will be gone & the new leader will not withdraw legislation. Que protests & the PLA rolling in to town. The CCP has driven such anti HK feeling in the mainland I find it hard to believe they will change especially with hard man Xi in charge. But hope I’m wrong.

  2. Polar BearMEMBER

    What a load of crap
    Being long AUD low 67s was the taking cake off the baby trade
    Blind Freddy could have seen AUD was going back to 68c
    It just slowly squeezed higher all night
    Market was/is very short AUD
    We’ve had 2 goes at 66s and it bounced so aggressively out both times
    Genuine buyers under 67c
    If 6850 breaks we are going to see a lot of short covering stop losses

    • I’m trying to move some money to / through a non conventional financial platform, anz bank is not paying out. It feels like I’m being bailed in. FFS

      • Polar BearMEMBER

        I’m definitely never abusive and I’ve been right a few times and I never say I told you say, nothing is more annoying than someone giving you the I told you so
        It wasn’t a personal attack on you
        Nearly everyone was getting bearish on AUD, even big players were selling low 67s, main stream media etc
        AUD has fallen from 82c to 67c, 20% thereabouts it’s a pretty big move
        I’m a dollar bull long term and I don’t trade short term anymore
        I agree with you we will see 40s in next couple of years and 50s next 12 months
        And I agree with your analysis I wrote that, but market just looks too short to have downside momentum
        Market is very short AUD, I wouldn’t be surprised to see 70c+ before next leg down
        I think it was an easy trade if you look through the noise

        And in a little fairness I cop a lot on here and I never say a word, I just suck it up

    • The Traveling Wilbur

      Which bit was, in your opinion, less than a scholarly effort? Conditions suppressing the AUD, globally, still seem to be in play IMHO.

  3. Polar BearMEMBER

    On another note
    I had a very long lunch with a very senior private equity player in China, was very senior in big 4 Australian bank,
    Based btw HK and China

    His views were very interesting

      • I must confess, I am less interested. If he works for one of the Big 4 how good or ‘in the know’ is he really likely to be?

        The movers and shakers work for proper outfits – leading investment banks. Those at the Big 4 are little more than quasi public servants – everything they know they’ve gleaned from the AFR

        • Obviously depends upon the info. If it is unexpected eg surprisingly bearish or critical, given the source, it could be meaningful. If its the usual dross, yeah, file under “they would say that wouldn’t they”.

        • He doesn’t work for big 4 Aust bank, that was 15 years ago
          He’s now a consultant for a large private equity player US player and consultant to a large chinese bank, setting up their wealth divison,

    • Seriously, “the big 4” they are so much out of the loop outside Aus that basically if you mention their name to market people they say “who? Is that some Aussie bank!” Even Macquarie who has a better reputation and is way more active than those guys is small fry up here… without being rude, the big 4 outside Australia are no-bodies..

    • Few key points
      Nothing I don’t think we know already
      China is in serious serious slow down
      He said when things go wrong, they force all the different players to take a slice of the pain, they share the pain around but it doesn’t stop the slow down, just tends to avoid one sector going down
      He felt iron ore demand was going to drop significantly
      He said China has had very high wage inflation 10/15% for quite a while
      He said that they are wierd, this save face thing is so extreme
      He said HK was safe, much worse on TV, he said in the most part you wouldn’t see it
      He said it’s close to IMPOSSIBLE to get money from China into HK now, it’s limiting the private equity deals he can do, he said the tap of money leaving is very close to CLOSED
      Money is leaving HK for Singapore
      He didn’t feel a lot of HK money was coming to Australia, thinks that rhetoric is over done.
      Yuan to keep weekening
      He said they keep saying move to consumer based economy but same old thing building crap that people don’t need

      He said China was a xxxx hole, but go to French Qtr in Shanghai for 3/4 nights, it’s amazing bars, restaurants and said get the fast train from Shanghai to Beijing for 2 nights and do the great wall other wise give everything else the miss.

      He said China is in serious slow down, probably worse than people are being told.

      He was very senior at one of the big 4 aussie banks that he set up in 2001

      He asked me where are all the Australian’s getting the money from, he said every where in the world in diff countries probably after GFC and said it’s like a bubble on another planet with people spending with no care in the world.

      I told him, the money is just coming from people’s offset accounts from HH debt, they are never going to repay, he said ah ok that makes sense.
      He said his home loan rate in HK was 1%

      We had a cabrioska before lunch and an expresso martini after, in btw we spoke about AFL

      There was other info re Crown but I can’t tell you about that sorry!!!

    • Well, it’s gunna be one helluva hailstorm where Everything gets hit. Sends my thoughts to PM’s, Yen & then Eur? Mark Carney mentioned removing the globe from USD reserve a week or 2 back so something’s being floated among them…. Maybe my platform will enable me to play SDR’s instead of DXY….. if counterparties still exist.