Lunatic RBA catapults Australian dollar higher

DXY eased overnight as CNY fell and EUR firmed:

The Australian dollar catapulted higher against DMs after the Lunatic RBA fell behind the curve on easing again:

And EMs:

Gold firmed:

Oil fell:

Metals fell:

Miners fell:

EM stocks fell:

Ominously, EM junk crashed:

Treasuries were bid:

Bunds fell:

Aussie is stuck with the Lunatic RBA:

Stocks fell:

As soon as the Lunatic RBA held yesterday, the AUD climbed non-stop. It was then aided by weak US data as the ISM joined the global manufacturing recession:

Economic activity in the manufacturing sector contracted in August, and the overall economy grew for the 124th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee: “The August PMI® registered 49.1 percent, a decrease of 2.1 percentage points from the July reading of 51.2 percent. The New Orders Index registered 47.2 percent, a decrease of 3.6 percentage points from the July reading of 50.8 percent. The Production Index registered 49.5 percent, a 1.3-percentage point decrease compared to the July reading of 50.8 percent. The Employment Index registered 47.4 percent, a decrease of 4.3 percentage points from the July reading of 51.7 percent. The Supplier Deliveries Index registered 51.4 percent, a 1.9-percentage point decrease from the July reading of 53.3 percent. The Inventories Index registered 49.9 percent, an increase of 0.4 percentage point from the July reading of 49.5 percent. The Prices Index registered 46 percent, a 0.9-percentage point increase from the July reading of 45.1 percent.

“Comments from the panel reflect a notable decrease in business confidence. August saw the end of the PMI® expansion that spanned 35 months, with steady expansion softening over the last four months. Demand contracted, with the New Orders Index contracting, the Customers’ Inventories Index recovering slightly from prior months and the Backlog of Orders Index contracting for the fourth straight month. The New Export Orders Index contracted strongly and experienced the biggest loss among the subindexes. Consumption (measured by the Production and Employment Indexes) contracted at higher levels, contributing the strongest negative numbers (a combined 5.6-percentage point decrease) to the PMI®, driven by a lack of demand.

But, beyond that, conditions for a weaker AUD remain very strong. CNY keeps falling as Chinese stimulus remains incremental:

The stock market is showing the consumer the great beneficiary not investment:

And EUR is also very weak as the ECB pulls out its bazooka:

To fight a capitulating German economy:

As risk comes off, the AUD should be in free fall, but for the as always paralytically cautious Lunatic RBA.

Comments

  1. Pretty funny to be blaming the RBA because the AUD does not mechanically respond to the target rate.

    The AUD bobbling around has a lot more to do with a stonking trade surplus and current account surplus than what the RBA does or does not do.

    If we really want a weak AUD like the mercantilists do we need to demand something that will actually make difference to the AUD.

    Like

    restrict asset sales to foreigners
    restrict foreign investment to minority interests in joint ventures.
    restrict offshore borrowing by our banks (for some purposes at the very least)
    encourage offshore investment
    Tariffs and quotas on imports (if you are really desperate)

    But nope NONE of that is allowed because of the free capital market ideology that remains holy scripture down under.

    Even while our trade rivals ignore that ideological BS in pursuit of national and political interests.

    The RBA target rate is a pea shooter that lunatics imagine to be heavy artillery.

    Plus when the pea shooter fires the only thing it blows up are asset prices !

      • proofreadersMEMBER

        IMO, screen jockeys will determine the level of the AUD and Strayan interest rates – not some pathetic excuse peashooter mini-me CB.

      • Wake up?

        To what? That there is some good reason why we can’t effectively regulate capital flows directly?

        How much target rate manipulation not working on the AUD does it take?

        And up until recently the RBA made it crystal clear that manipulating the AUD was NOT an objective of monetary policy and even now they only talk about the effect on the AUD as being a side effect of achieving their objective – support growth, asset prices, trickle down etc.

        There is a very good reason for that.

        A central bank claiming to manipulate the AUD is NOT allowed by the free market club house in Washington and the EU….even as the break their rules themselves.

        I don’t understand why you don’t support doing explicitly and much more effectively (regulate capital flows) when manipulating capital flows is your rationale for the RBA fiddling with the pea shooter (target rate).

        All you have to do is fully let go of the free market in capital stuff.

        You are almost there anyway supporting blatant use of the target rate to manipulate the AUD.

      • Hey guys check it out – lowering those interest rates has really stimulated the economy big time !

        https://www.abc.net.au/news/2019-09-04/gdp-growth-set-for-weakest-result-in-nearly-20-years/11475438

        https://www.smh.com.au/politics/federal/government-braces-for-poor-gdp-result-as-shoppers-keep-wallets-shut-20190903-p52nj2.html

        Its not as if the rampant price rises through higher import costs on retailers is sending them to the wall as their profits collapse through higher import costs at the FX

        https://www.smh.com.au/business/markets/shock-drop-in-stockpiles-may-have-sent-economy-backwards-20190902-p52n7p.html

        I mean who ever heard of an tightly focused commodity export economy with no domestic manufacturing entirely reliant on imports being affected by rampant inflation through currency devaluation !

        Nah – could never happen.

        We will lower our AUD and China will buy more iron ore for that infrastructure project it planned 5 years ago – they will just add in more steel – its easy, and they will of course add in more steel because its cheaper !!

        • Bear Claw,

          On this one we agree !

          A lower AUD is only an advantage if a higher AUD was the result of unproductive capital inflows. If it is due to excellent trade performance than why worry about that!. The only thing we could do to “fight that” is to export loads of capital like the mercantlists do to keep the AUD down (e.g. Japan, China, Germany, Korea etc)

          For the most part the current level of the AUD is due to trade performance but with a trillion dollars of foreign debt and mostly bloated housing all we have to show for it, unproductive capital inflows have played a part.

          The benefits of discouraging speculation (unproductive capital allocation) are likely to exceed the costs of the resulting modestly lower AUD.

          To the extent I am arguing for regulation of unproductive capital inflows and credit creation that certainly may have some impact on the AUD but the bigger issue is trade performance.

          Whether we can keep that up a trade surplus and CAS is another question. As you note we have shuttered just about everything apart from quarries and degree factories and the arrival lounges.

          If our trade performance falls off a cliff (i.e China) then the AUD is going down down down.

          And in that situation the RBA may have no choice but to raise interest rates to avoid too much capital flight or to attract the capital / debt required to run a trade deficit.

          And if rates are driven up by a terms of trade and export crunch, the consequences for our debt addled households and the prices of housing assets is likely to be gloomy.

          So a lot is hanging on what happens in the Middle Kingdom.

      • Actually, the poo went up because of terrible US numbers released about midnight our time. Just have a look at the hourly charts to confirm. Now it looks like the Fed may be facing an earlier-than-expected downturn. Fed rate cuts back on the table. As the saying goes, what did you think would happen? Not much to do with the RBA directly

  2. Mate you need to read this

    https://www.smh.com.au/business/markets/shock-drop-in-stockpiles-may-have-sent-economy-backwards-20190902-p52n7p.html

    The dollar is crucifying our businesses – we are an import economy – we have no domestic manufacturing left, hence no benefit from a lower dollar.

    We wont be selling more cars, refrigerators, washing machines, pants, socks, and buses at a lower dollar – because we don’t make anything.

    We export dirt and degrees – almost entirely inelastic. Demand does not change on price.

    • Yeah I don’t understand the push for a lower AUD, China buys our ore either way, would be good to see the impact on volumes through a lower Aussie.
      Would keep more cash circulating in Oz?

      • Brings in more AUD cash, including tax revenues.

        Also helps us outcompete our competitors, so we take market share from them and increase our volumes.

        • Mark is right.

          Lower AUD will have precisely dick impact on ore volumes. And we don’t export anything else.

        • China PlateMEMBER

          and our competitors are going to sit around and say “well dog gone that’s just bad luck for us yeah, lets now turn to exporting more semi-conductors to make up the difference”

        • Absolutely false.

          Its the opposite – Ore is an inelastic demand commodity – lower price does nothing for volume, purely impacts revenue and negative TOT.

          • See my comment above re. our competitors. Lower AUD = we outcompete them = we take market share from them = we increase our volumes at their expense.

        • Brazil second largest exporter, geographically would cost more to ship to China.
          Top 4 exports – Ore, coal, gold, gas. Price sensitive?
          Lower AUD, would investors be less likely to park cash in Oz?

        • Arrow2 you simply refuse to address the issue of inelastic demand for our export products.

          Your position only holds true when there is elastic demand – that is two similar items (say cars, washing machines, televisions) which can be easily exchanged for each other and are therefore price responsive.

          Australia is pretty much the only supplier of Iron Ore at the bulk levels required – Brazil had to shut their operations down and all other mines are operating at full capacity.

          Further the demand for iron ore is pegged out years in advance – major infrastructure projects are not simply brought into effect over night due to a low iron ore price.

          In other words – low price has ZERO impact on demand – absolutely zero.

          The same across the board for most of our export commodities. Especially education.

          People don’t choose to go to Melbourne University over Timor East University because it is cheaper – they go there because it has the reputation they want. Making it cheaper will not increase enrollments – which are already capped. Sorry it simply wont.

          You have the most remedial grasp of things and ponce around here telling everyone how it is while everyone face palms your almost total lack of understanding on the most basic concepts.

          You can’t listen and learn when you are constantly talking – shut it and try and understand what is being said for once.

    • Bear Claw I don’t know how many times you’ve changed your user name, but you never change your monotonously incorrect posts on the economic effects of the AUD exchange rate. You are consistently, invariably, resolutely wrong. It’s almost impressive!

      I, on the other hand, do change, in the sense that I can no longer be bothered explaining why you’re wrong. But you are.

      • You’ve never explained it an I am not wrong.

        The idea that suddenly Australia will export more iron ore because our AUD has dropped is demonstrably the single most inane, resolutely asinine belief this side of the insane asylum.

        You are utterly wrong.

          • There is nothing above.

            You simply claim to be right and refuse to explain how or why. When every other person in this thread, and on this website has always pretty much laughed in your face.

            Here’s your premise – lower Australian dollar makes our export products cheaper and therefore will be preferenced over others.

            Sure that applies in ELASTIC markets – do you know what elastic is ? Its an economic term, not a sowing one. Look it up.

            However Iron Ore and almost all our commodities, particularly finance and education services are INELASTIC. A price drop does not mean we will sell more – hence no extra revenue, no extra taxation.

            Everyone else seems to understand this except you – too proud to admit you don’t get it ?

    • This is the distinction of a consumer based economy AKA a developed economy, hence why Mfg was basically off-shored for a bunch of market [tm] based reasons [compliance costs and ease of doing business] …. the horses bolted long ago … hence basing economic views on a past that is no longer applicable is bound to increase gnashing of teeth and pulling of hair …

      • Not according to Arrow2 – who believes he doesn’t even have to explain himself (because he cant) – when Iron ore is cheaper everyone starts importing it more – especially people making Televisions and soccer balls – they love more iron ore.

        Oh – and China things hey wow Iron Ore is cheaper – lets build a train line, said not one person ever.

    • Polar BearMEMBER

      I’d say everything now will be driven by offshore events
      Market is short AUD
      I think HNH analysis is correct but my gut feeling is AUD might bounce a little before the falls
      Guess it depends on DXY EUR CNY etc
      But market is short,
      I think it’s a little dangerous being short at low 67s last few days
      As the crisis keeps building over next new months, I think we will see irrational moves in everything
      For me like a few people have said on here too, I’ve taken profit on USD longs and will re enter above or close to 70c
      I’d rather make nothing than make a loss
      I wait for levels and don’t fall for FOMO
      Just be careful
      Take smaller positions wider stop losses and be patient
      Remember “the sheep get slaughtered”

      The only way you can be a successful trader is by being on the opposite side to the market position, but knowing when to take the opposite side and at what levels
      Be patient and try not to listen to consensus.
      Consensus is nearly always wrong

      • Hey Polar, when do you think ASX crashes and hits bottom? If looking back at GFC, stocks plummet but so much opportunity, CBA was in the 20s, BHP $12. I’m not a trader but if we took out a loan and jump in on the next cycle would be a good start, yes?

        • Polar BearMEMBER

          Mark
          Honestly that’s very hard Q
          also to comment on Jimbo below
          I believe Jimbo is partly correct
          Think 5800 is around my support too
          Think if 5800 breaks it’ll be a false break, can’t see below 5600/5700
          Don’t think you can compare to GFC, there was a huge leverage long margin lending factor that’s not present this time as well as many other factors that will limit the extremity, I’ve written many times
          I think people will call a crash at 5700/5900 like Jimbo and his mates and I think will bounce out catch a few short and also just like this time buyers will miss
          Timing who knows let’s say next 4/6 months
          I think by Xmas but give me until early March
          Re banks etc, I’m not that smart. Like D Boey and HNH, I just buy the index on a very good sell off, I’ll average in for a sub 6000 position and hold long term
          I’m guessing like everyone else
          Don’t believe sharemarket can crash
          BTFD

      • For me, its good to see how others view investing, before we see a financial adviser. My sister was advised to buy an OTP apartment in Melbourne 4 years ago, it took 3 to build. She regrets it, and says she should have known.

        Sounds like some have been in the game for a while, good experience, and lessons learnt.

        • Don’t go to your sisters financial adviser, sounds like he is being sending all his clients to the slaughter house

  3. Hill Billy 55MEMBER

    I had a laugh on my walk this morning. 20 something lady coming toward me gets all upset because I walked across her as she tried to turn right. Even whilst having her whinge she still didn’t have her right indicator on! Next corner a bloke in his 40’s coming up behind me has his left blinker on, I stop so he can go, but he indicates for me to cross. I wave a thank you.

    I get that the young people need someone to hate, and us boomers are close at hand (they can’t think too far out of the box, too taxing). And my old man hated the British, I hated the Americans, so there probably aren’t anymore to hate on (Chinese anyone?) but we got over our hate. But what I find amusing is that the young are so much like us. Is it because they actually don’t like themselves? Is that where all this anxiety and depression comes from? Thoughts?