The Australian dollar is the China decoupling cure-all

See the latest Australian dollar analysis here:

Macro Afternoon

Via the AFR:

Agricultural export giants are pleading for the government to resolve its tensions with China and privately fear they could lose lucrative deals.

Fletcher International Exports founder Roger Fletcher, the biggest sheep meat exporter to China, is enraged at how out-of-hand the tensions between China and Australia have become.

…”I just wish everyone would shut up,” Mr Fletcher said. “If the Chinese pull the plug on this I’ll be very angry at journalists and governments.”

We should all be angry if they do. Let a thousand China critics bloom! Mr Fletcher and other agribusiness exports will get over it and his children will enjoy a sustainable democracy instead of surviving in a CCP vassal state. Displaced commodity volumes will go somewhere else, initially cheaper, the same prices over time. Other buyers will lose supply as China displaces them. Commodities are fungible.

Yesterday we heard from another Labor greybeard balling his eyes out over lost China links:

Craig Emerson massively over-egged any impacts of deteriorating relations with China by telling us that iron ore is at risk with all sorts of dire warnings about what will happen to us if we decouple. None of it will happen. Without iron ore, the CCP itself will be thrown from power. Longer-term, iron ore is buggered anyway as the Chinese growth model stalls. We already waltzed through an iron ore crash to $38 in 2015.

The bigger risk is falling inflows of Chinese students and tourists but they, too, will be replaced one way or another, as the Australian dollar falls.

This is the truth that CCP apologists dare not speak of. With all displaced exports to China, either they go elsewhere initially and it’s fine. Or they do not, and the domestic economy stalls as income skids, followed by a currency crash until new markets open up with the improved competitiveness.

In point of fact, it’s a great opportunity just now. Global supply chains are also fleeing China, mostly to our doorstep in areas of South East Asia within the US alliance network. Get the Australian dollar down and Australia becomes the irresistible regional capital of choice for every head office in Asia seeking geopolitical stability.

Stop fretting over China. The CCP runs a neo-Nazis system that launched a silent invasion of Australia. We beat it back. Relations are exactly where they should be.


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


  1. Thanks DLS

    We don’t bow and scrape to anyone. We extend a hand of friendship to all with integrity. China has proved it lacks this quality.

    It is O.V.E.R.

    • Crikey CP, dozens of books have been written about that period. Unlikely. CKS’s regime was corrupt and ineffective beyond belief. At that time the Commies were better organised and took advantage of the wreckage left by the Japanese. The opportunities to prevent that wave of history, if they even really existed at all, were further back in time.

      What’s more important is how the world empowered China in more recent decades and allowed it to get away with so much. This needs to stop now.

      Turnbull speaking well despite Fran Kelly’s interruptions on the ABC this morning. That quisling Carr has been up to his usual Global Times editorial sprouting BS.

      • China PlateMEMBER

        Perhaps Chinajim.
        But CKS was not the only corrupt lead with a finger in the pie. Mal made it an art form also.
        I think Mal was better organised because he left the fighting of the Japanese to the nationals and he just concentrated on his internal struggle for power.
        But I do agree allowing them into the WTO with no strings attached was not a great idea in hindsight.

  2. I like to add my small, probably insignificant contribution as well. Send an email to the Chinese embassy with your thoughts on them. Therapeutic more than anything.

  3. As long as we can keep up exports long enough to provide the Boomers with a satisfactory retirement – that’s all that really matters.

    In a couple of generations Wh!te Europeans will be a minority in Australia and the USA and China will have complete dominance. Who is going to oppose them, the descendants of today’s Uber drivers and dodgy migrants? Already in school these kids don’t speak English, don’t integrate, and harass females.

    Best we can hope for is that China considers us (ie. the high-IQ founders and builders of this country) ‘Han’ and integrates us into their empire instead of giving us the Uighur treatment.

    • “In a couple of generations….China will have complete dominance”

      Nup, China’s stuffed – out of water in its north, no oil, a stalled economy. Expect civil war within a generation. The CCP knows it has its back to the wall, hence its military build up and current hostility.

        • It’ll play out like very other incarnation of imperialistic totalitarianism. The ruling elites will overplay their hand internationally and paranoia will kick in the moment the worm turns, At the first sign of civil unrest, the regime will seek to crush it and then whip up nationalist fervour by starting a hot war over a disputed territory. History has a way of repeating itself with preening, puffed up, supremacist goons like the CCP.

      • Likely in less than a generation. For some, that will be a huge surprise. I hope somewhere, in some little room in Canberra, they are making contingency plans for what this nation might need to do to handle the consequent regional fallout.

      • China has its back to the wall because ‘Imperial Hubris’ have overtaken policy making. The 10 year term limit was created for this very reason : once Xi made himself ‘Emperor for Life’, China’s fate is sealed to go down the same path to ruin as all other Imperial Chinese dynasties.

      • Maybe I’m missing something, but I don’t see how it would be painless. The in-aggregate private debts have to be funded, and we are a capital importer. The hedges on the banks rates exposure will be what – two years out at most?

        I simply don’t see how the RBA can let the AUD fall much without stroking inflation and real rates rising for everyone (at the margins anyways).

        • The RBA will ignore the inflation. (The call it “choosing to look through inflationary trends”)

          I suspect the RBA is more concerned about popping a property bubble with higher rates than in curbing inflation.

          • No – that is the point. Yes they look through inflation for the average punter. sure – no argument there.

            But the fall will raise inflation expectations, which makes it really hard for the banks to fund their rates risks on their existing mortgage books (which are materially deteriorating as we speak).

            Given the scale of debt in the banks books, and my guess that the worst is still on their books as opposed to have been securitized out to some putz, how will they fund their own books?

            The risk it that market perception of the banks ability (i’m looking at wpac) to manage rates risks, in the face of a falling dollar and deteriorating loan book quality, will lead to a credit freeze and then run on the aussie banks.

            If that party starts, everything goes t!ts up.

  4. MountainGuinMEMBER

    With China’s high food inflation I find it curious that they continue to look at banning food imports from Australia. Sure banning wine won’t impact the average Chinese consumer but meat and grains will. They are also fine to antagonize nations throughout Asia-pacific by invading their fishing grounds or otherwise strip their fisheries, but then cut food imports. Conflict all around …

    • They only ‘ban’ what they can source elsewhere. Barley from Argentina, beef from Brazil, coal from Indo etc
      The contingency plans would have been put in place well before any bans.
      Hence no mention of iron ore, or anything else they need.
      Australia is not in control here, not by a long shot.
      Who knows what they may be cooking up with Brazil and Vale to ‘fix’ IO supply, or African supply. It might take a while but they’ll be working on it, along with anything else they can fix.
      It’s simple, if they can’t buy us, they’ll try and squash us …… slowly and quietly
      We are just the useful idiots at present !

      • Carlos, isn’t that what much of the world is doing to China by looking for alternative sources for manufactured goods – either at home or in low cost countries other than China. Not much slow and quiet about it on either side.

        • Yep I’m sure manufacturing is looking to other options, but no use to us, we dont manufacture.
          To change manufacturing options on the scale of China’s current capacity and make an impact will take significant time.
          It appears it’s a lot quicker to change natural resource supply as seen with barley & beef.
          Education and tourism can be turned off pretty quick too, what else we got ?

  5. So let me get this straight.
    In your exchange rate model the AUD trades at a rate that is mainly determined by the balance of trade.
    Have I got that correct?
    Casual observation would suggest this sort of model worked well in the 1980’s was questionable by 2000 and is 100% wrong post 2010, but you’re making a bold prediction of a sudden post Covid return to a 1980’s currency trading environment.

    • There are an inordinate number of factors that influence exchange rates: capital flows, budget deficits, speculative attacks, currency pegs, interest rates, money supply growth. Ultimately, simple market supply and demand. There’s no formula.

      • Exactly, but to my point, exchange rates depend on comparative economics rather then individual performance.
        Having an soso balance of trade is going to cost you but only if your major trading partners print OK numbers.
        It is hard to know which way Exchange rates will trend when every country tries to win/lose in the game of printing butt ugly trade results and that’s before you even begin to consider the follow-on effects Capital flow in uncertain times.

  6. There’s plenty of other nations to trade with and doing so will bolster not just the required margin but a future economy / shared planet approach that will be required to maintain democratic principles. Dancing with the Panda will inevitably see these eroded and though ‘some’ see this avenue as the only option, it’s lazy, selfish and short-sighted and fraught with peril as we’re seeing now. The contemporary world is turning away from China for good reason and may it continue and demonstrate to the Chinese that the current path they’re on will be met with implacable resistance.

    See the very real trends here:

Leave a reply

You must be logged in to post a comment. Log in now