Australian dollar swoons as Fed hawks up

See the latest Australian dollar analysis here:

Macro Morning

DXY was firm on Friday night and EUR soft:

The Australian dollar was weak again:

We got a good flush of shorts last week back to -76k but positioning remains very negative:

Oil faded, gold firmed:

Base metals kept falling as the energy bubble shudders:

Miners managed a small bounce:

EM stocks fell:

Junk was OK:

The yield curve was punished:

And stocks fell:

The key event of the evening was a hawkish Fed chairman, Jay Powell:

Federal Reserve Chairman Jerome Powell is readying markets for an announcement of a slowdown in its asset purchases, suggesting that the U.S. economic recovery looks fit enough to sustain reduced Fed stimulus as soon as next month.

Powell said the Fed is “on track” to begin slowing the pace of its U.S. Treasury and agency mortgage-backed securities purchases, which it is currently doing at a clip of about $120 billion a month.

He added that if economic conditions progress as expected, the Fed could bring the so-called quantitative easing program to a full stop by the middle of next year.

A few charts from ZH:

US rate markets are now pricing nearly three full rate hikes H2, 2022.

My own view remains that crashing liquidity, commodities and a deflation shock emanating from China puts that very much at risk. However, US growth, inflation and yield leadership will be retained with its tightish labour market and forthcoming further stimulus.

Markets are smoking crack on the idea that the RBA will follow this path. Tat will become ever more clear as commodities plunge ahead.

It’s all very Australian dollar bearish over a one-year timeframe.

Houses and Holes
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