Biden stimulus to drive new Australian dollar gains

See the latest Australian dollar analysis here:

Macro Afternoon

Via ING:

USD:Biden’s $2tn plan causes re-steepeningBack-end US yields are back on the rise following a media report that claimedBiden’s pandemic relief stimulus will likely be around $2tn–bigger than what most investors were forecasting–and will include direct payments to families, state and local funding. This has further endorsed the recent rise in inflation expectations and hopes of economic recovery which has prompted are-steepening in US yield curve. Despite the dollar staying mildly supported in the current environment, the negative implications in the longer-run in a real-rate perspective leaves us confident about our bearish-USD view. Data-wise, initial jobless claims look set to rise again after slightly contracting last week. Meanwhile, political developments involving President Trump continue to be largely overlooked by investors. Trump’s second impeachment by the House on claims that he incited the Capitol riots was not a surprise, but an emergency senate session for the trial before Biden’s inauguration appears unlikely.

Deutsche is similar:

CNN reporting that Bidens stimulus plan will be about $2T which saw a renewed selloff in treasuries. The USD followed but in a more subdued fashion with AUD and NZD dipping circa 20pips before recovering and it felt like the market was unwilling to overextend ahead of Powell and Biden speeches over the next 24hrs. Short-term risk feels evenly balanced with the USD likely to continue to be led by fixed income but commodity currencies should find some support from resilient equity markets. Key levels to watch on the downside come in at0.7705 (uptrend off Nov lows) then 0.7666 (weeks low) in AUDUSD and 0.7145 in NZDUSD (weeks low and neckline of H+S top formation). I expect more of a holding pattern generally from here unless Powell or Biden give the market a reason for direction but the market will be building conviction to sell USD rallies if fixed income consolidates. The underlying theme of strong Antipodean data lives on (Aus retail sales the latest) and grind case higher for AUD and NZD still stands on reflationary theme, relative virus success and the underlying data. As for Canada, a similar trade though with some pushback on the currency by the BoC. We have chipped away at the CFTC short out there whichis now small long, but still we feel CAD is lagging the move in other risky assets due to oil but oil has since recovered (WTI back above 50c)– hit the sell zone towards 1.28

Recent discussions have also suggested that Biden may include infrastructure stimulus in a phased rollout in the same package, not dissimilar to Ken Henry’s rollout of sequential stimulus in the GFC. That also has the potential to boost the current strong commodity bid, also lifting the AUD, at least in sentiment terms, even if a lot of Australian-related bulk commodities will be largely unaffected given developed economies tend to use very large proportions of recycled metals, such as steel.

The ING position is fair enough as the base case but we should congnisant of the the stretched position in the USD short which will have to be digested at some point. As we know the AUD long is still small so that is some counter-balance.

Longer-term, there is also the risk that successful vaccine rollout sends the US economy and yields flying out of the blocks and at some point that will also support the USD. China is tightening and will slow too as the year deepens, which will inhibit the European recovery, though that will be offset by its own vaccine catch-up growth spurt which is likely to be even strong than the US for a while given it is deeper lockdown.

In short, the current trends are likely to persist for a while yet but the seeds of the reversal are beginning to sprout.

David Llewellyn-Smith

Comments

  1. Wonder if they will ever give up this burst approach and institute a real social welfare system………..unemployment finally getting hit again by the virus

    https://twitter.com/LizAnnSonders/status/1349712358734786561

    The worry is not that this virus mutates, but that the same mutations are occurring all over the world, with a few local changes, wherever there is a significant infection.

    https://twitter.com/CaddeProject/status/1349060088271679489

    In good news initial Israeli figures show you really need that second shot in a timely manner, don’t use up those stored second shots.

    https://www.timesofisrael.com/israeli-data-shows-50-reduction-in-infections-14-days-after-first-vaccine-shot/

    • Stewie GriffinMEMBER

      I wonder how much of that 2 Trillion dollars will be reparations for slavery?

      Given Biden’s focus on American workers, I imagine none of it.

      /sarc

        • Stewie GriffinMEMBER

          Far from being an evil imperial Naz! Trump more closely resembled the bumbling and inept Kaiser Wilhelm.

          This would make Biden and Harris the equivalent of presiding over the US version of the Weimar Republic.

          Somewhere, at some time in the near future, someone who is going to be arrested, imprisoned and prosecuted for taking part in the 2020 Capital Hill riots, will be elected US President by 2032, in the ashes and ruins of Hyper-Inflation America… they will probably write a Kindle book about their experiences before hand.

          • Jumping jack flash

            Trump is living for the 50s but everyone else who matters is longing for a return of the 00s.

            The two ideologies clash at every level.

            Hyperinflation is all but baked in to be the end game, but if everyone does it at the same time will anyone even notice?

        • Stewie GriffinMEMBER

          That link actually contained a detailed link to the “Hero’s” act – because Hero’s always have their hand out:

          https://appropriations.house.gov/sites/democrats.appropriations.house.gov/files/Updated Heroes Act Summary.pdf

          Lots of piddling hand outs until we get to Title V – Financial Services and General Government

          Treasury Inspectors General – $35 million for the Treasury Inspector General for oversight of Coronavirus
          Fiscal Relief Fund payments to state and local governments, and $2.5 million for the Treasury Inspector
          General for Tax Administration for oversight of IRS payments.

          Assistance to Homeowners – $21 billion to states, territories, and tribes to address the ongoing needs of
          homeowners struggling to afford their housing due directly or indirectly to the impacts of the pandemic by
          providing direct assistance with mortgage payments, property taxes, property insurance, utilities, and other
          housing related costs.

          State Fiscal Relief – $238 billion in funding to assist state governments with the fiscal impacts from the
          public health emergency caused by the coronavirus, including $755 million in CARES Act Coronavirus
          Relief Fund repayment for the District of Columbia.

          Local Fiscal Relief – $179 billion in funding to assist local governments with the fiscal impacts from the
          public health emergency caused by the coronavirus.

          Tribal Fiscal Relief – $9.5 billion in funding to assist Tribal governments with the fiscal impacts from the
          public health emergency caused by the coronavirus.

          Fiscal Relief for Territories – $9.5 billion in funding to assist governments of the Territories with the fiscal
          impacts from the public health emergency caused by the coronavirus.

          Assistance to Multi-State Transportation Agencies – $100 million for assistance to multi-state entities
          that are involved in the transportation of passengers or cargo and are suffering revenue losses due to the
          public health emergency caused by the coronavirus.

          Community Development Financial Institutions (CDFI) – $1 billion for economic support and
          recovery in distressed communities by providing financial and technical assistance to CDFIs.

          Elections – $3.6 billion for grants to states for contingency planning, preparation, and resilience of
          elections for Federal office. [Stewie: Gotta make sure everything is ready for the next election !! lol Actually this is further expanded on DIVISION P – ACCESS Act Section 103 ==> 106 Early Voting and Voting by Mail/Absent Ballots]

          Broadband – $12 billion to close the homework gap by providing funding for Wi-Fi hotspots and
          connected devices for students and library patrons, $3 billion for emergency home connectivity, $200
          million for telemedicine grants, and $24 million for broadband mapping.

          General Services Administration Technology Modernization Fund – $1 billion in funding for technology related modernization activities to respond to coronavirus.

          National Archives and Records Administration – $92 million to offset user charge losses due to coronavirus, preventing the furlough of hundreds of Federal workers.

          Office of Personnel Management Inspector General Office (OPM IG) – $1 million for the OPM IG to combat healthcare fraud associated with the coronavirus.

          Assisting Small Businesses – $50 billion in grants to small businesses that have suffered financial losses as a result of the coronavirus outbreak.

          Postal Service – $15 billion for revenue forgone due to the coronavirus pandemic, plus language providing
          additional protections to Postal workers. An additional $15 million is provided for the Postal Service Inspector
          General for oversight of this funding.

          Pandemic Response Accountability Committee – Clarifies the jurisdiction of the Pandemic Response
          Accountability Committee

          So that is an immediate $500 Billion or half a Trillion dollars that will either directly or indirectly flow to needy Banks and Financial Institutes, and destitute IT and tech companies.

          Then we have Title VIII – Labor, Health and Human Services, Education, and Related Agencies

          $2.1 billion to support worker training, including $1.6 billion in Workforce Innovation and
          Opportunity Act grants to States, $500 million for the Dislocated Worker National Reserve and $25
          million for migrant and seasonal farmworkers, including emergencysupportive services. Ensures any
          funds under this Act for apprenticeship support Registered Apprenticeships;

          • $500 million for the Employment Service to help connect unemployment insurance claimants and other
          job seekers with employers looking to hire;

          • $925 million in contingency funding to assist States process unemployment insurance claims;

          • $15 million for the federal administration of unemployment insuranceactivities;

          • $39 million for Unemployment Insurance national activities necessary to support the UI system;

          • $100 million for the Occupational Safety and Health Administration for workplace protection and
          enforcement activities in response to coronavirus, including $25 million for Susan Harwood training
          grants that protect and educate workers and $70 million for compliance safety and health officers and
          safety standards enforcement;

          • $6.5 million for the Wage and Hour Division to support enforcement and outreach activities for paid
          leave benefits; and

          • $5 million for the Office of InspectorGeneral for oversight.

          Wow – a MASSIVE $4billion !!! DLS was right, Biden has got the backs of American workers!

          There are some further sizeable spending under the ‘Health’ category in the “Labor, Health and Human Services, Education, and Related Agencies” which I have no issue with.

          Then there is the Title IV part right towards the end Title IV – The Jabara-Heyer NO HATE Act

          The “No HATE Act”: This Act would provide grant funding incentives to state and local law enforcement
          agencies for the collection of hate crimes data and reporting it to the Department of Justice, which would report the data to Congress.

          Good to see that they are going to make “Hate” even more illegal and punishable – no doubt the ADL or SPLC will be getting nice fat allocations as the premier ‘anti-hate’ organisations in the US.

    • Ronin8317MEMBER

      The unemployment figure has become numberwang due to political influence (6.7%?? On which planet?). The non-farm payroll is not manipulated as much, and it’s not looking good at all.

  2. Jumping jack flash

    2T is barely enough. I reckon about double or triple that will be required to usher in a new golden age of debt. And don’t be fooled, that is the intention.

    Then again things are generally cheaper in the US, but they need price inflation to allow wage inflation to enable debt growth, the same as everywhere else does, and that initial round of price inflation must be supported by debt. (Businesses dont generally borrow to create wage increases and new positions)