Australian dollar pops and drops on Evergrande vs Fed

See the latest Australian dollar analysis here:

Macro Morning

Forex tells a very interesting tale today. Following on from Evergrande’s extraordinarily dubious news and a PBoC liquidity injection yesterday, which dumped DXY, the Fed was hawkish which launched DXY:

The Australian dollar popped on the crosses but was whacked back down vs DXY:

Gold faded. Energy is driving the Fed into policy error crescendo:

Base metals were not convincing:

The mining dead cat purred a little:

EM stocks bounced:

Junk not so much:

And Treasuries issued a policy error warning, flattening the curve:

Which stocks ignored on general BTFD activity:

Westpac has the data:

Event Wrap

The FOMC said “moderation in the pace of asset purchases may soon be warranted” if the economy continues to make the progress toward the dual goals, signalling an announcement at the November meeting – largely as markets had expected. Chair Powell, in his press conference, said any such tapering would likely conclude around mid-2022. The statement noted the economy and employment have “continued to strengthen,” though the pandemic has slowed the recovery. The statement also noted “Inflation is elevated, largely reflecting transitory factors.” The dot plot projection for the Fed funds rate rose slightly for 2022, from a 0.125% median to 0.25%, while 2023 was increased from 0.625% to 1.0% – the latter a moderate surprise for markets.

US existing home sales in August were close to consensus, falling 2%m/m to an annualised 5.88m (est. 5.89m, prior 6.00m). NAR described the outcome as a reflection of pent up demand.

Eurozone consumer confidence rebounded to a historically high level at -4.0 (prior -5.2, est. -5.9).

Event Outlook

Australia: Weekly payrolls for the week ended 28 August will provide an interim update on the ongoing effects of the pandemic on labour.

Euro Area: The September manufacturing PMI should remain firm on robust demand and supply chain frictions (market f/c: 60.3). The September services PMI is expected to be supported by the re-opening of the Euro region (market f/c: 58.5).

UK: The September manufacturing PMI continues to point to robust growth, whilst the September services PMI should reflect delta risks for services. Further, the BoE policy decision and discussions are likely to highlight a promising outlook whilst acknowledging downside risks near term (market f/c: 0.1%).

US: The August Chicago Fed activity Index will provide a timely update on activity for the region. Initial jobless claims for the week ended Sept 18 should show the downtrend slowing (market f/c: 320k). The September manufacturing and services PMIs are also likely to remain in good health. The August leading index is also due (market f/c: 0.7%).

The Fed was hawkish:

The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals. If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

The Fed shrugged off Delta and lifted 2022 growth plus turned marginally more hawkish on the dots:

My views are unchanged. Nothing that has happened in the last 24 hours makes me any less bearish AUD or anything else. PBoC liquidity injections are incremental easing. We already know some kind of Evergrande restructuring is imminent. The Fed was, if anything, more hawkish than it has been.

This is still a 2015 or 2018 rerun with the Fed staring policy error in the face as Chinese growth fades fast, with commodities and EMs in trouble.

Sell AUD rallies.

Houses and Holes

Comments

  1. The AUD pop looked more like a good old short squeeze. Lots of carnage but ending up back where it started.

      • You’re looking in the rearview mirror.
        Your prediction is $60. bnich’s is $300.
        Pretty soon we’re going to find out who is on the right side of the ledger.

        • Dylan,
          This really only matters to me, I don’t run a fund, I invest or trade only for myself & I guess my twin daughters are 17 and their demands keep going up.
          Really It’s not a competition for me. I am just writing what I honestly believe, I am not trying to be different or antagonistic. I am positioned for what I think
          My calls are very long term, I don’t care about corrections, I am holding for years, markets are volatile & we are going to see these moves both ways.

          Note to Gav, I have come around to a believer in BTC & Ethereum, the investment is in a digital platform that will be the future of money. Love BTC & ETH very long term

          If I am wrong in 3 or 4 years not 3 weeks, don’t care about that short time horizon

          MB & all of you have a view or opinion which is good, I love hearing everyone’s views. Noone is right all the time.

          • @bnich. It’s great to have a different viewpoint. I do think you’re 100% right on the trading viewpoint: emotion does seem to outway logic in these matters.

          • bda
            Tell me what’s not a ponzi scheme, becuase I’d be happy to invest in that, the whole thing is a ponzi

            There is NO WAY I’d lend my money buying government bonds to those imbeciles that run our country that are borrowing & spending with no regard or thought how to ever repay it. I don’t know how Gov bond yields can’t rise

            Fiat currency is on the way out. these governments have destroyed our current monetary system, they will keep printing & completely destroy it

            BTC, love commodities becuase I can hold them, need to own tangible assets.

            My concern on property is the amount of debt secured against it & property taxes, rising interest rates but I am going to buy a small place somewhere north, I am getting out of Melbourne, I also wouldn’t put much money into property, to me property is just a roof over my head…..like those 60’s apartments, SE QLD. I’d prefer to own gold silver BTC. etc, mining & I am really big on global food companies. Agriculture commodities.
            Really Iron Ore is no big trade or care of mine. I like just a little bit, that’s a bit of a joke on here
            Really prefer Food

            BETA ETF

            ASX FOOD (global hedged Agri companies)
            ASX FUEL (global hedged energy)
            ASX MNRS (global hedged gold miners)
            SILJ (US Junior silver miners

            Lithium
            Uranium
            Rare Earths
            Rhodium
            Platinum
            Mineral Sands

            Honestly I am really not that interested iron ore, never have really invested in iron ore other than shorting RIO about 5 years ago on this site & had my head ripped off shorting iron ore. IO is a bit more china centric
            Above is my main interest

            I think the US is going to shaft us all by devaluing the USD.

            I’d like to get a little place in SE QLD, my ex wife & twin daughters play polo, they live on a farm inland from Brisbane, have horses & dogs, so I can still stay with them, have a good relationship with my ex & her new partner, I feel sorry for him when I stay.

            You can always keep a good relationship with your EX but it costs you big time lol

          • Ronin
            I never talk about what I do but I bought FMG a few days ago actually just before they paid a dividend of 2.11 more than 10%, I didn’t know dividend was due
            I like iron ore long term, happy to hold with all commodities hedged against rising AUD
            Like long AUD
            No idea about Evangrande
            Iron ore will be used for a lot of infrastructure this decade & devaluation of the USD will increase price regardless of China or Evangrande

            Think iron ore will reverse very sharply up from here

      • Copper hasn’t fallen at all…..it’s just in it’s last 3 months trading range

        AUD market is sitting now near 100,000 short contracts, highest in recorded history

        Iron ore did fall but we are near a bottom here for big upside, big upside in copper & base metals from here.

        AUST & US bond yields haven’t even budged they are higher since this debacle in China started, AUST & US 10 year bond yields heading to 3% from here

        Australian home loan interest rates are about to start rising & house prices are going to fall. We are heading into a multi year bond bear market, rising interest rates & falling property prices……higher inflation

        Market is very long bonds now betting on Lehman or Greece & it has happened

        The fall in equities was an overdue nice 5% correction & share market has bottomed now for next run up

        ASX 9,000

        The FED PBOC are going to debase the USD, (I have never heard the term Shanghai accord), but USD is going to be devalued as a plan to minimise US debt obligations. China probably more stimulus too. Fed has left the door open, if it needs to increase QE it will, that’s JP’s decision not the hawks who don’t even vote

        Commodity prices have huge upside here, based more on a devaluation of the USD, Long term USD bear market in front of us. This is really the first stages of USD moving from reserve currency (not yet) but much lower USD before USD changed as the reserve.

        AUD heading to 90c first

        Copper Iron Ore etc the OZM’s FMG, VALE’s big upside from here. Big move up in all mining commodities (in Gold & Silver) directly ahead

        Gold & Silver much higher

        All driven by a falling USD.

        Well done if you shorted iron ore FMG or whatever but it’s a trade only & you’ll get caught short if too greedy

        It’s what I think & what I am positioned for…….if you want to sit short AUD & short commodities good luck, it may work out for you all.

        Commodities much much higher this decade, we have only just started the move up as USD big falls ahead.

        Commodity Super Price Boom is about to really get underway.

  2. Its already been announced that Evergrande has already been taken over by CCCP, apartments will be honored and financial products kept intact.

    Basically China has done what the US should have done during the GFC – bailed out the home buyers and sacrificed the banks and bond holders.

    Web is blowing up about it.