See the latest Australian dollar analysis here:
The Market Ear offers this nice little presentation with which I agree 100%. As DXY rises with Fed hikes, and CNY crashes with the Chinese economy, EMs and commodities are on a hiding to nothing. Ukraine can only support this trade for so long before it crumbles and then crashes.
Dollar – the commodities connection
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Everybody knows why the commodities boom occurred, but Is BCOM becoming “concerned” about the unstoppable DXY move? The BCOM and the DXY have moved higher in tandem since autumn, but this is not the “natural relationship”. Yes, the world is short on commodities, but don’t forget we price it in dollars. Second chart shows the longer term chart of the DXY (inverted) vs BCOM. Both moving higher isn’t really that common…
Oil – we price it in dollars
Is oil starting to pay attention to the extremely strong dollar? Black gold has lately developed a gap vs the DXY. There are a lot of moving parts on a global macro level that affects oil, but take a look at the longer term chart of the DXY (inverted) vs oil. This gap is huge (chart 2).
Recall the dollar debasement logic?
Fed printing and the dollar getting weaker hasn’t worked since 2021. You print more and it get worth even more…not a bad trade.
Gold starting to notice the dollar?
Add gold to the assets priced in dollars…
We bought BTC because of the weak dollar
Bitcoin hasn’t performed overly great since late 2021. The dollar “connection” isn’t helping much when looking at the longer term chart. DXY (inverted) vs BTC.
Gradually, then suddenly
The great interest rate spread vs a currency. Chart showing the US -China 10 year spread vs the CNH. You can compress something until you can’t…and then you get the big move. The past CNHUSD move has been absolutely huge.
Swimming against the tide
Nobody has missed the latest BoJ action and the imploding JPY. Chart showing the US-Japan 10 year rates spread vs the JPY. As El Erian writes: “The BoJ is trying to aid competitiveness and fight deflation without tipping adverse reactions”. 13% loss for the JPY in a few weeks is already an adverse effect. Let’s see how this plays out, but the global FX dynamics are huge.
The EEM bulls carried out on stretchers
Recall when every strategist was calling for the relative long EEM trade as the dollar was supposed to get weaker. The dollar did the opposite, and the relative EEM long crashed. The dollar strengthening is putting a further pressure on food inflation and this is a very real problem for Emerging market countries (chart 2).