DXY was down hard last night:
The Australian dollar ripped more than everything:
Gold failed again:
Oil is retracing:
Dirt did better:
Miners to the moon:
EM flamed out:
Junk was soft:
Bonds too:
The Aussie long end puked:
Stocks boomed then busted:
There were some ‘risk on’ flows that lifted the Australian dollar but the RBA picked a bad day to say this:
If conditions continue to improve, though, it is likely that smaller and less frequent purchases of government bonds will be required.
This completely mistakes cause and effect. Only the purchases, and prospect of considerably more of them, are forcing conditions to improve. You can’t start talking about tapering two weeks into QE. Not unless you want to jack-knife your rates and currency straight back up again, which is exactly what happened.
The RBA has long been a poor communicator. Always too bullish in both the outlook and rhetoric. That won’t wash while the market trades purely on liquidity, as opposed to any real assessment of credit risk. If you give it that chance it will gut your bonds and bid your currency to the moon every time.
This is Jedi central banking in which the manner of expression is as important as any actual mechanism. The RBA must be Obiwan uttering “this is not the currency you are looking for” with a magical wave of the hand every time. Hopefully the bank has learned a lesson.
If not, its frequent communication gaffs are going to inject unnecessary volatility into bonds and the Australian dollar as frequent taper tantrums erupt.
