How long can the Australian dollar ignore Chinese decoupling?

See the latest Australian dollar analysis here:

Macro Afternoon

Late last year, the Australian dollar fell one cent in a second when China first started playing sill buggers with Aussie coal. Today, as $20bn in exports are targeted nothing happens. The Australian dollar is serene today:

Bonds are bid:

XJO is soft:

Big Iron too:

And Big Gas:

Big Gold has firmed after the great shellacking:

Big Banks are easing too:

Big Tech is fading away:

So, how long can the AUD hold up against the Chinese trade assault? The media is reporting that virtually all Aussie coal is now blockaded.

In 2018/19, 20% of Australia’s $69bn in coal exports went to China. So we’re talking only $14bn which is nowhere near enough to put a dent in the trade surplus. Even if we add the other $6bn in trade that’s being targeted, and assume it’s also 100% blockaded, it would still leave Australia with a healthy trade surplus which has been running around an average $6bn for several years:

This is why the Australian dollar is ignoring the stoush. The damage is not material in macroeconomic terms, especially as iron ore keeps going up.

Which gives you a hint about when it will matter to the AUD.

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

Comments

  1. You’d think there would be open discussions about Australian export duties on IO bound for China by now, wouldn’t you? Show them we have some form of proto-spine even if it never evolves to be strong enough to support us standing upright?

    Nah, Straya, she’ll be right!

      • Well if that is your situation, mate, it’s f’ed. Waste of time and effort if moderating is a thankless and endless job.

          • Well said, really loyalty to Aus in forced unless you can run.
            Don think there is anywhere, I searched 15 years ago but to no avail.

          • You’re fighting hard for them DLS and they’ll be grateful.

            You couldn’t go wrong to buy a few acres in a nice cool spot with running water for them – I’ve done it for mine – a relatively cheap, cool spot (10 deg cooler than Melb today) with great soil and water…..teach them some veg growing, repair etc skills 🙂

  2. Trade surplus was $50 Billion last year. However it was only 21 Billion, and 2 Billion the previous years.

    Your analysis is based on the Chinese cuts to agriculture, seafood and mining – it fails to mention the cuts to tourism, students and real estate purchases which add close to $20 Billion.

    Coal at $14 Billion and Agriculture / Seafood at $6b is a $20 Billion wipe out alone – that is all of 2018’s surplus. To be so dismissive is honestly crazy. While even our best ever year 2019 it would have wiped out almost HALF – certainly NOT this

    The damage is not material in macroeconomic terms

    Now all of this has also been premised on a collapsed Brazilian iron ore export sector through their dam bursting and of course Covid.

    Finally those Iron Ore purchases were spectacular during 2019 and the March through June 2020 seem to repeat that incredible feat – however July through now things have collapsed and your own analysis continuously implies things are only going to get worse.

    • Treasury Wines in trading halt and was down 11% …. China ramping up the anti-dumping rhetoric to smack Aussie bums.

  3. Those further cuts are not yet offical nor here though I agree they’re coming.

    I’m not being dismissive. The market is.

    The food and mining stuff will largely go elsewhere over time so it won’t be that bad.

    The key is iron ore, as I say.

    BTW, who are you? This debate deserves some transparency.

    • AUD is holding up well against the US dollar – the US dollar is in full blown retreat and is the single reason for Gold and Bitcoin.

      Other metrics are not seeing it fair so well.

      As to China I think it is time you sat down with yourself and asked some more high level questions rather than continuing to assume what you have always just thought and presumed is actually correct.

      There is a very deep and profound allegiance to the US and UK within your thought matrix which is either misplaced allegiance or outright foreign funding. If it is foreign funding there is nothing further to discuss. If it is in an actual fact your own personal view then it needs deeper consideration.

      The cold war view of the world many of your generation have of the west vs communists is incredibly out of touch with where things are headed. The United States position under Dick Cheyney saw China as the single greatest threat to the US. But what was the threat ?

      Its not military in any real sense – war will end us all. Of course it is economic – but economies will continue. The threat is as, Rumsfeld stated and Cheyney confirmed, “no country should not only not be able to threaten to challenge the United States, but not even consider the idea of challenging. ”

      That is the threat – purely that the United States is the un-challenge-able unilateral power on earth. And everything will be sacrificed in that end.

      The problem is that this assumption was ingrained post collapse of Soviets – hence Francis Fukuyama – and the position and trajectory of China is 100%, without any question at all, entirely refutes that notion.

      So by default unless China is eradicated from the face of the earth – not going to happen lets be honest – the foreign policy pathway of the United States to preserve itself as a unilateral, unassailable, un-challenge-able power is a hugely self destructive pursuit.

      And that is China’s foreign policy. Just as it was the United States foreign policy towards the Soviet Union. The United States was not in a war of military, spies, nuclear arsenal – the US single purpose was to financially overwhelm the Soviets – and in the 1960’s, again in the 1970’s the soviets agreed to end the cold war and come to peace – the US refused as they KNEW they could utterly destroy the soviets. US foreign policy number one – “absolute resolve” – Robert McNamara.

      China is banking on the US doing what the US does – and it is working an absolute treat. So every day, week, month, year you post the same thing – Iron Ore collapse China, middle income trap, coming collapse, 18 months etc – and you are wrong every time.

      So where should Australia position itself ? With an empire that is collapsing as fast as it rose and throwing itself relentlessly against a wall in an apoplectic fit of narcissistic lunacy to be number one for now and forever ?

      The rise of Asia is relentless – you have the worlds largest country, with the worlds largest resources in alliance with the worlds most populace country which has the worlds largest educated middle class, largest manufacturing base, largest infrastructure base, in the middle of the worlds most affluent and wealthy region – Asia.

      At the absolute least – Australia should be ensuring its long term survival and aligning itself with the future of world economy – that is no longer the Anglo-American alliance.

      • Sorry we actually have friends remember china has NO FRIENDS and will hopefully get sued for reparations when the dust settles….either that or the west u hate just appropriates your assets that are here and you can all go back to the peasants you were riding bikes around peking

      • adelaide_economistMEMBER

        “So where should Australia position itself ? With an empire that is collapsing as fast as it rose and throwing itself relentlessly against a wall in an apoplectic fit of narcissistic lunacy to be number one for now and forever ?

        The rise of Asia is relentless – you have the worlds largest country, with the worlds largest resources in alliance with the worlds most populace country which has the worlds largest educated middle class, largest manufacturing base, largest infrastructure base, in the middle of the worlds most affluent and wealthy region – Asia.”

        False dichotomy. Since when does China = Asia? Outside of the CCP and the fevered imagination of its legions of purchased lobbyists and/or Han supremacist fans I mean. Of course that sort of assumption is precisely why people need to push back against China and it’s ‘peaceful rise’.

        • +1
          Food may become the most critical resource going forward.
          50 million Chinese died from starvation last century. Their north is out of water and their land is now more polluted/degraded and although they’re taking action on many fronts, how to feed their population this century may soon become pressing if it hasn’t already. Hence the military build up and all the jostling and aggression. Hungry people don’t just lie down and die.

          With all the 21st century conceit of globalisation and techno-wisidary, we’re still animals and need to feed three times a day. Ironic to think that what may bring us down are the same issues that have contributed to the destruction of every civilisation before ours – food, water and resources.

      • You’re very preoccupied with size – the largest this and the largest that, the most this and most that… I think Russia is the world’s largest country, followed by Canada. Australia is a large island, but in reality is mostly arid/desert with a thin fertile strip around its coast, with its arable land being equivalent of two US states – Idaho and Iowa.

        Asia, (especially central Asia – the ‘stans’ – Uzbekistan etc and India, Pakistan, Bangladesh) will this century struggle to feed their large populations and it’s likely food and water will become the defining issues of this warming century, with the countries that can feed themselves with fewer FF inputs, surviving best.

        A nightmare is unfolding across the world and there will be few winners – perhaps Russia and Canada, if not swamped with starving refugees, but I doubt Asia. I also doubt there will be a ‘world economy’ by century’s end.

        “My name is Ozymandias, King of Kings;
        Look on my Works, ye Mighty, and despair!”