No, it’s not. Because the economy will die long before we get there. But it going higher and fast towards that death.
DXY was smashed Friday night and EUR spiked:
The Australian dollar went absolutely berserk against DMs, as expected following the Fed’s launch of the AUD one way bet:
EMs were strong too:
Gold took off:
Oil is simply screwed:
Metals got the monetary memo:
Miners not so much:
EM stocks hit new highs:
Junk launched:
US yields retraced a bit:
MOAR US stocks!
So, this is exactly the expected outcome of the Fed’s new tails you win, heads you win policy on inflating the Australian dollar. By declaring itself flexible on inflation targeting above 2%, the Fed has guaranteed that:
- if it fails, then MOAR Fed easing is coming endlessly, crashing the US dollar and sending capital gushing inflation hedges like commodities and attached currencies to the moon;
- if it succeeds then MOAR Fed is coming anyway, rinse and repeat.
Both outcomes scream buy AUD.
And there is another problem. The Fed is stoking the long end of the bond curve. But it cannot be allowed to spike given it sets US mortgage rates. While the risks of a rerun of the pre-GFC bubble will concern, not so much that the Fed is going to want to see the yield curve steepen very far. Yet it is has started and as the vaccine wave hits will likely intensify, via Daily Shot:
So, that virtually guarantees MOAR Fed easing as well, even though, and because, markets are pricing it out for the time being.
The monetary battleground for forex post-COVID is ALL about degrees of currency debasement. There are no interest rates left to push around the carry trade. The weapons now are the degree of free money, to whom it goes, and how much of it ends up in fiscal policy.
The Fed and Donald Trump are scorching ahead of Australia on every formerly irresponsible turned responsible measure while the RBA and Morrison fret over such utterly redundent niceties as positive interest rates, central bank independence and deficits.
The conclusion is obvious. The US will inflate its asset prices and economy to heaven as it sends its currency to hell.
Outgunned and dated Australia will see its asset prices and economy go to hell as its currency is forced to heaven.
