Australian dollar roars on as US dollar falls out of bed

It’s swift becoming a DXY tank for the ages. EUR is out of control. Germany must be ruing eurobonds already. CNY is riding DXY coattails down in its usual evil supply-side grab:

Nobody should be cheering the AUD. We’ve been pivoting to EU for our offshore hedge:

Gold is consolidating after its run:

Oil was hit:

Dirt too:

And miners. All profit-taking I’d say:

EM stocks are poised:

Junk on the march:

Yields smashed:

Stocks were soft. EUR is going to crush Continental bourses:

The only chart that matters soldiers on:

Westpac has the wrap:

Event Wrap

US Q2 GDP fell a record -32.9%q/q annualised (vs median estimate -34.5%). Core PCE growth fell to -1.1% (prior +1.6%). A sharp fall in personal spending was slightly offset by net exports and government spending. Perhaps of more concern was the rise in continuing jobless claims  to 17.0m (vs 16.2m estimate and prior)  as the impact of persistent COVID cases started to impede employment. Initial jobless claims were close to expectations at 1.4m.

German Q2 GDP was soft at -10.1%q/q (vs est. -9%q/q). July CPI fell, at -0.5%m/m and flat y/y (est. -0.2%m/m and +0.3%y/y). German July unemployment surprised with a decline of -18k and a rate of 6.5% (est. +40k and 6.5%) but Eurozone June unemployment reflected weakness in other national releases and rose to 8.8% (est. 8.6%).

Event Outlook

AustraliaPrivate sector credit growth will hover around the previous rate of -0.1% in June, due to a weak housing market and declining business activity (market f/c: -0.1%, Westpac: -0.2%). Falling energy prices will lead to a fall in Q2 PPI growth from 0.2% previously.

New Zealand: ANZ consumer confidence will find firmer ground in July due to the rise in spending (prior: 104.5).

AsiaFactory output is rebounding across the region, with Japan and Korea set to see a material improvement in the June prints; from -8.9% to 1.0% and -6.7% to 2.3% respectively. Taiwan Q2 GDP is vulnerable to downside risks after clinging to growth in Q1 (prior: 1.59%, market f/c: 0.0%).

ChinaManufacturing and non-manufacturing PMIs have been robust of late. Broadening growth will support the PMIs in July; from 50.9 to 50.8 and 54.4 to 54.5, respectively.

Eurozone: The bulk of economic pain from COVID-19 will be seen in Q2, with consensus estimates predicting a deterioration in GDP growth from -3.6% to -12.0%. CPI inflation pressures will remain negligible for the foreseeable future (prior: 0.3%, market f/c for July: -0.5%).

USPersonal income fell in May after an initial boost from government handouts. June will see an improvement (prior: -4.2%, market f/c: -0.7%). Personal spending is recovering but remains at risk as states battle the virus (prior: 8.2%, market f/c: 5.3%). The bounce in the June PCE deflator from 0.1% to 0.4% will be the result of energy prices, the core measure remaining at 1.0%y/y. Soft wages growth will be a lasting consequence of COVID-19, with growth in the employment cost index set to moderate from 0.8% to 0.6% in Q2.

With DXY so high still, and collapsing at spectacular speed, the AUD rocket is not finished.

David Llewellyn-Smith
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Comments

      • PalimpsestMEMBER

        The ABC view is “Yes” it’s legal:
        “technically, Americans don’t elect the president when they go to the polls in November. The votes they cast then go towards electing 538 members of the electoral college, which are distributed to states based on population. Then those electoral college members go on to choose the president.

        But there’s nothing in the constitution that says the electoral college members must be chosen by a popular vote. All the law says is each state “shall appoint” its electors “in such manner as the Legislature thereof may direct”. The Supreme Court has already affirmed this point thanks to the 2000 Bush v Gore case.

        So, if the 28 Republican-controlled state legislatures decided not to hold an election in November and instead just pick electors that back Trump, there could be 294 electoral votes cast for Trump without a single American going to the polls.”
        https://www.abc.net.au/news/2020-07-31/donald-trump-twitter-2020-election-delay-coronavirus/12510204
        I’m sure Barr has been looking into this already.

  1. A few things to consider

    Everyone talks about a falling USD pushes up commodity prices…..but are people aware that falling commodities can push the USD up

    If GOLD holds this 2,000 level (as DLS said which is the best description = “GOLD is stretched”

    So let’s just see if GOLD starts to fall we may see a bounce in the USD

    Even though DXY is falling, AUD isn’t going up with GUSTO like it did in the 60s, yes I grant it’s bid but it’s running out of steam. AUD feels to me it’s taking a back seat to GOLD and Equites,

    AUD market i feel is staring to position a little long

    A few points to consider

    • Commodities are an inverse dollar play to an extent. A few ppl asked me why I was bullish commodities for the coming few years as surely a Depression would cause a drop in demand. Well, new supply was already dropping off long before Covid-19 and now trillions of dollars has been printed – to be followed by trillions more in short order. Certainly, who wins the US election is irrelevant at this point – the stimulus waves will keep on coming. This is a US Dollar story and commodities will be bid on the back of it.

      Mining and processing commodities is a dirty and expensive business. Printing infinite amounts of money? Basically free.

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