Australian dollar bashed anew as virus ravages US

See the latest Australian dollar analysis here:

Macro Afternoon

DXY was up and about last night:

The Australian dollar reversed down smartly:

Gold was bashed:

Oil is clinging to $20:

Dirt sees some kind of bottom:

Miners too:

EM stocks fell:

Junk rolled:

Bonds were soft:

Stocks too:

The US is now being ravaged by the virus both medically and economically. Goldman sees a Q2 growth apocalypse:

While the exact timing of the medical and economic recovery is highly uncertain and relapses are plausible, our assumption is that stronger lockdown and social distancing measures and perhaps some weather effects reduce new infections sharply over the next month. Combined with potential medical breakthroughs or adaptation by firms and consumers, this slowdown in new infections is likely to lead to a gradual economic recovery. The slow pace of recovery in our forecast even in 2021 allows for longer-lasting scarring effects on businesses and workers

  • On the one hand, the anecdotal evidence and the sky-high jobless claims numbers show an even bigger output and (especially) labor market collapse than it had anticipated. This not only means deeper negatives in the very near term but also raises the specter of more adverse second-round effects on income and spending a bit further down the road.
  • On the other hand, both monetary and fiscal policy are easing dramatically further, which will tend to contain these second-round effects and add to growth down the road. The Phase 3 fiscal package was much bigger than we had expected, we now anticipate a Phase 4 package focused on state fiscal aid, and the Fed is likely to use the $454bn addition to the Treasury’s Exchange Stabilization Fund aggressively to sustain the flow of credit to private-sector and municipal borrowers.

Press reports citing state officials indicate that claims rose dramatically from March 15-21 to 22-28 in California and Texas. Our analysis of anecdotal press reports for the 15 most populated states suggests a significant increase in total claims during March 22-28, in part because many states experienced application bottlenecks in the first week and in part because stay-at-home orders likely had a greater effect in the second week.

We expect claims to remain very elevated—likely over 2mn—for at least another week (March 29-April 4) and somewhat elevated after that. Widespread reports of application bottlenecks suggest that many laid off workers have yet to file. Some employers, especially in the retail sector, are taking a staggered approach to layoffs. And many business owners and workers are just beginning to learn about the more generous unemployment insurance benefits—which will exceed normal wages for many workers—and the expansion of coverage included in the Phase 3 legislation. In total, we expect over 11mn claims to be filed in the first three weeks of the coronacrisis and at least a couple million more in the rest of April.

…Using the labor market data in this fashion requires an estimate of “Okun’s law”, the relationship between the change in the unemployment rate and the change in real GDP (relative to trend). Normally, the coefficient for Okun’s law is thought to be about 2, meaning that a 1pp rise in the unemployment corresponds to a 2% hit to real GDP. During this crisis, however, a more appropriate Okun’s law coefficient is likely to be closer to 1.

Our current estimate of a roughly 12pp increase in the unemployment rate implies a roughly 12% peak decline in the level of GDP, which is broadly consistent with the estimates in Exhibits 1 and 2. Going forward, we plan to use this relationship and its industry-level counterparts aggressively to keep our GDP estimates up to date in coming months as more timely labor market data become available. This could well imply further substantial revisions to our real GDP estimates—in either direction—as the scale of the labor market downturn comes into fuller view in coming weeks and months.

The V-shaped recovery story is bull except to the extent that it sees the economy bouncing off zero. Nomura has a better chart for how this will likely play out, for Europe:

In short, output will return to pre-virus levels over three years. 

I still see a major US corproate debt shakeout based upon this, a strong greenback, and a much lower Australian dollar.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. robert2013MEMBER

    Oh come on. The AUD was not bashed. When it fell to 55 cents that was a bashing. This is an oscillation.

    • It got Rodney King’d that day. I’d like to understand how much the RBA’s activity has contributed to the subsequent uplift. I’ve seen some comments on here, but they’re above my pay grade.

      • Wrinkled Sachs

        It was in response to what happened in the US and EU far more than anything the RBA did. The Atlantic response stabilized global markets.

        That said – the margin call now coming on mortgage lenders with hedges is sending the banks to the wall.

        Said it for weeks – this time round using the same cure as the GFC will kill it all. Its like Penicillin – a little bit is great – too much and you’re dead.

        They had to let the bad debts clear out and allow a reset this time – it was imperative as maintaining the entire system with so much baked in bad money meant the liquidity being injected into the system to save it would rush to the most injured parts – where like a great would it would just pour straight back out – as has happened.

        Like hooking someone up to blood transfusion when the have a gaping wound in their leg – it just pours straight out.

        The solution was to provide life support to the patient (direct cash to consumers) and cut the leg off entirely and seal it up. Stop the bleeding. Then pour in some more blood – QE.

        Now all the blood pouring in has blown up the patient and more wholes are appearing – they still wont cut off the bad leg.

        Now factor in oil going to zero. Real estate going to -50%.

  2. Looks like another ‘ please don’t cash in all your chips just now’ story from Nomura. The structural adjustment may take decades. A bounce in the 3 years time frame implies a return of the bubble in everything. Doubts

  3. What probability would you place on the virus causing a more significant structural collapse in the US? Based on the current trajectory, it’s easy to see this going beyond economic and health impacts fo wider social disorder and political upheaval.

    • darklydrawlMEMBER

      Yeah, this worries me too. USD might be ‘king dollar’ but what if the US goes full zombie apocolypse? They’re not known for their social cohesion when law and order breaks down. Too many guns for starters.

      • Wrinkled Sachs

        Despite emphatic denials to the contrary from websites which will remain un-named – ahem. The Petro Dollar is a very real, and very concrete reality in the modern world.

        The single – most absolutely assured thing to come out of this pandemic is that Oil will never, EVER recover.

        We are going electric – that process once started is a self fulfilling perpetual motion machine.The transition is assured as land line to mobile phones. The idea that we will go back to land lines seem ridiculous now – same with oil. Its done.

        This will undermine the US entirely.

        The transition away from US dollar denominated global trade has been absolutely massive in the last 3 years. People refuse to even LOOK at the reality let alone believe it. Simply refuse to even acknowledge it – and it is the primary cause of so much global volatility in the last 5 years – more.

        The collapse of oil coupled with Chin’as recovery and the US failures on the pandemic will see China emerge from this as the global powerhouse. It will have manufacturing, energy, economy and a people united behind a country which looked after them.

        Its not just China. Singapore, Taiwan, Hong Kong, Japan – the entire region is looking like it will take over – while France, Italy, Spain, UK are all in dire straights. Germany the only one which will come through in the western world (outside Nordics) with its people in lock step.

        America – right now is looking very poor indeed. Asia will literally take over from here. Asia is already more wealthy that the west – people forget this simple fact. BY a fair margin as well.

        • Except for the whole thing about starting the virus, spreading the virus, lying about the virus, stripping local supplies to fight the virus…. If your response includes it was started by US servicemen visiting Wuhan, we got you covered.


        • China’s recovery? I’ll have some of what you’re smoking. You have some really interesting ideas, but the gold-buggish electric-crypto is waaaay out there. And the idea that Asia is richer than the west is crazy. Ford is making ventilators now. The west will reinvent itself – just not for the causes and reasons that everyone thought.

        • China builds a lot of crap like those ghost cities to nowhere. All that bad debt will come home to roost eventually.

          I know a lot of brilliant minds are in China, but it’s the lack of standards and scheming that really gives me the sh1ts and lack of respect for copyright and fake products they flood the market with that really annoy me.

          I’ll always try my best to avoid buying Chinese goods. Is like they are the opposite of what Japanese goods of the 70s, 80s and 90s are. Japan would build superior quality for affordable pricing. China makes some of the most defective junk for cheap. It makes finding qualify items they make almost impossible.

          I really hope the world moves away from China as a manufacturer. The sooner the better. I think all nations should be more self sufficient.

          This country was better for it in the 80s and we can have pride in the stuff we did make.

    • MountainGuinMEMBER

      With trump in charge its unclear to me how US will react in the late infection stages when death rates drop. I think many nations will stay largely closed and be very very cautious of reinfection. But trump’s current language, for what it is worth, has a strong economy focus, so he may seek to open faster than other economies. May be better from economy point of view but come at cost of additional lives.
      While all economies are cooked now, the way they reopen seems important to recovery predictions.

      • Trump is not trying to unnecessarily delay a fix for the problem. That might make a difference to outlook.

    • “Airbnb hosts are flooding the regular rental market. London just saw a 45% rise in rentals hit the market. It’s 64% in Dublin and 78% in the British tourist town of Bath”.

      Oh yeah!


        Handfuls of Zantac and Xanax will only help to soften the inevitable detonation.

      • darklydrawlMEMBER

        It’s likely we will see this here too. Both in the major cities and tourist regional hotspots. Interesting times.

      • I’m glad the home I bought is not in the Air BnB areas and so I haven’t paid an Air BnB price for it.

        I honestly think the Air BnB blood bath could be the best outcome of this Virus.

      • NSW Health has a particular knack. Whether it be cruise ship disembarkations or tympanic thermometers requiring person to person contact at the airport.
        They will still earnestly lecture the rest of us about appropriate behaviour though.

    • Argubly, Australia has the world’s best at _____ (whatever a poltician is pushing at the time)

  4. Darth Sidious

    Cameco has already recovered its coronavirus-led losses – well, that was quick.

    I thought energy stocks would take longer to recover, at least 6 month or so. Not that I am complaining….