Melbourne outbreak sickens Australian dollar

See the latest Australian dollar analysis here:

Macro Morning

DXY was soft Friday night:

The Australian dollar was softer still:

CFTC AUD positioning is now perfectly neutral:

Gold eased:

Oil held on:

Everything China is now bubbling. Dirt:


EM stocks even as the virus tears them in twain:


Yield curves are nationalised:

US stocks remain something to behold:

The SPX/AUD correlation fell away last week as the Melbourne virus outbreak exploded:

So, what next for the Australian dollar? The first point to make is that it still very much depends on the fakeflation and trajectory of stocks rather than the local economy. Until the bubble pops, the trajectory remains up for AUD.

Second, the Melbourne virus will be influential over how strong that correlation remains. We should be able to get on top of the outbreak with the lockdown (though the Sydney outbreak is very worrying), so we are more likely than not approaching the peak of that headwind already.

Third, I remain quite bullish on iron ore. I see us reaching $130 before long and even $150 if Brazil has another hiccup, so that is another building tailwind for the currency.

In the short term, then, the AUD remains biased upwards with the large caveat that only until the stock bubble bursts.

But, this is pure fakeflation of the currency. In the medium term the Aussie economy is in historic trouble. The population ponzi is dead. Melbourne is going to be the epi-center of an Australian property and domestic demand crash into 2021.

As well, there are mountains of iron ore when Brazil finally gets it together and, although Chinese demand is being juiced by another round of suicidal credit creation, it has clearly decided to punish Australia in every other way possible.

Before long, without a currency deep into the 50s, Australia will be unable to grow at all.

David Llewellyn-Smith