Rampant greenback mows down Australian dollar

See the latest Australian dollar analysis here:

Goldman, BofAML: Greenback boom not over

DXY has broken out and has the ears pinned back as EUR tumbles:

The Australian dollar held on at the brink again. It has a horribly bearish descending triangle chart but its benefitting from “buy the dip” a la US stocks:

EM forex was even weaker:

Remarkably, gold is runnig hand-in-hand with DXY:

Oil is still trying but is literallly sloshing all over the floor:

Metals were hit:

Miners fell:

EM stocks too:

And junk:

Bonds were bid:

And, lo, stocks bought the dip:

Westpac has the wrap:

Event Wrap

The NY Federal Reserve’s Empire State survey rose sharply from 4.8 to 12.9 (vs 5.0 expected). ISM-adjusted, it’s at a 15-month high. The survey likely captures the phase-one US-China trade deal plus fall in Brexit uncertainty, but is yet to capture the coronavirus pandemic impact. NAHB homebuilder sentiment slipped from 75 to 74 (vs 75 expected), still near a multi-year high. Low mortgage rates and a strong labour markets have supported the housing market.

German ZEW economic confidence survey fell from 26.7 to 8.7, optimists continuing to outnumber pessimists, although the report does suggest a weak Q1 GDP outturn.

Last night’s GlobalDairyTrade auction saw prices for most products fall, the headline index down 2.9%. Our key export product – whole milk powder – fell 2.6%, matching yesterday’s futures market predictions of a 3% fall. At US$2966, it is at the bottom of past 12-month range of $2966-$3330.

Event Outlook

Australia: Another sub-par wage price index print is expected in Q4, with Australian wages forecast to rise 0.5%, 2.2%yr. The January Westpac-MI leading index is also due to be released. In December, the index rose from -0.62% to -0.32%, pointing to sub-trend growth in early 2020.

In the UShousing starts and permits will be followed by the FOMC’s January meeting minutes. Discussion of the risks to the growth and inflation will be the focus for the market. Bostic, Mester, Kashkari and Kaplan also due to speak.

It was all about growth divergence again. With the US leading thanks ot the Richmond Fed and tearaway building confidence:

Builder confidence in the market for newly-built single-family homes edged one point lower to 74 in February, according to the latest NAHB/Wells Fargo Housing Market Index (HMI) released today. The last three monthly readings mark the highest sentiment levels since December 2017.

“Steady job growth, rising wages and low interest rates are fueling demand but builders are still grappling with increasing construction and development costs,” said NAHB Chairman Dean Mon.

“At a time when demand is on the rise, regulatory constraints along with a shortage of construction workers and a dearth of lots are hindering the production of affordable housing in local communities across the nation,” said NAHB Chief Economist Robert Dietz. “And while lower mortgage rates have improved housing affordability in recent months, accelerating price growth due to limited inventory may offset some of that effect.”

…The HMI index gauging current sales conditions fell one point to 80, the component measuring sales expectations in the next six months was one point lower at 79 and the gauge charting traffic of prospective buyers also decreased one point to 57.

Versus implosion in the hoped for European rebound:

The ZEW Indicator of Economic Sentiment for Germany decreased sharply in February, falling 18.0 points to a new reading of 8.7 points. The indicator is thus slightly below its December 2019 level. The assessment of the economic situation in Germany has also worsened compared to the previous month, with the corresponding indicator dropping to a level of minus 15.7 points, 6.2 points lower than in January.

Expect it to get much worse in the months ahead as the China shock lands. At least the Brexit rebound will cusion it.

For now it is more of the same. The US economy is the COVID-19 safe haven of choice. Do not stand in its way.

The Australian dollar is hangong on for grim death but looks at severe risk of new eleven year lows.

David Llewellyn-Smith
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  1. Glad to see gold running hand in hand with the dollar. Should hopefully kill the myth that the two are inversely correlated. The dollar is benefitting from the US’s cleanest dirty shirt status and gold sniffs yuuuuge monetary stimulus.

    What happens, one day, when investors need a safe haven and decide that even dollar assets won’t do the trick?

      • It’s a tough call des.
        Gold was poised for a quick and dirty correction before this latest surge to $1,600 — the market speculative long position is very large, making downside risk more elevated. That said, there is no reason why it can’t push on from here.

        My basic rule is: if you don’t have any gold exposure at all then any time is a good time to get some (‘some’ being the operative word).

        Looking into the crystal ball there’s a good chance gold could test the 2011 high some time this year (US$1,900), so if that fits with your time horizon then dip your toe in. There is a lot of monetary stimulus coming – with or without COVID19, so I don’t think you can go too far wrong.

      • Yes, one day those dollars will come home — it’s pretty much all over then. I think we’re some way off yet though.

        That said, things can escalate quickly. I’m a firm believer that the next crisis will be the last crisis – I can’t see how we can ‘go again’ from the ashes of the coming conflagration. The next crisis will be the one that crystalizes in investors’ minds the idea that the economy and financial system cannot sustain itself without endless large scale money printing – and what that means for the real value of ‘money’ (currency).

    • Dominic, gold is certainly getting a boost from falling long term bond yields.
      I would rather be owing gold with a falling USD, but falling bond yields are supporting gold, even with a rising USD.

      Something to watch.

      Falling bond yields are probably indicating future US rate cuts.

      • Undoubtedly. And falling rates are designed to boost the money supply – one way or another. If not through the commercial system, then via Fed pump priming. Either way, gold anticipates the increased money supply.

  2. A shocking unemployment print tomorrow might shove the AUD off the cliff… not holding my breath though, the ABS numberwang is strong!

    • Might be a bit early for that. If most anticipate the effects to be temporary you may see firms opt for short working weeks instead. Sacking people in this country is an onerous undertaking and there’s redundancy payments to be made etc. Better to hang tight and hope for the best. If things don’t improve though, there could be an avalanche.

      • Yeah, this so called construction bust has been running for a while now and I think last month there was more construction employment than ever. Makes no sense to me, but one thing I know is that I will not speculate on a lower employment print ever.

  3. They are calling the Cambodian leader the Corona king, watch it spread, however I’d say we won’t hear much about it.
    Question is, when do countries start cutting off flights to Singapore and Japan, and eventually 🇦🇺