DXY pooped last night:
AUD was in free fall versus all majors:
Oil and gold held their gains:
Dirt firmed:
Miners fell anyway:
EM stocks are marking time:
Junk firmed:
The curve steepened, the long end fell further below support:
Which was enough for stocks:
Why is the Australian dollar in free fall? Credit Agricole offers context:
Unprecedented volatility enveloped markets in March as concerns about runaway inflation gave way to fears of a global banking crisis, only to be replaced by a somewhat puzzling ‘all is well’ rally towards the end of the month. In our view, the main driver of the risk-on rally was renewed injection of liquidity thanks to the USFed’sefforts to stabilise the banking system and renewed reduction of USTreasury cash reserves. The rally was further propelled by a wishful narrative in the market, painting a goldilocks scenario where growth and inflation decelerate just enough to enable a Fed pivot, yet a credit crunch is avoided and P/E multiples in the stock market remain unscathed.
The “Fed put” back at work indeed! Yet, we suspect (and expect) that these distortions will soon yield the way to tightening liquidity conditions eventually, either through a self-reinforcing cyclical credit crunch or inflation-fighting monetary policy. In EM FX, the impact will be felt the most by the most crowded currencies and those otherwise most sensitive to changing risk sentiment.
If AUD in free fall is taken as a signal, not noise then it is telling us that the “wishful” narrative is already in trouble and a change in risk sentiment is near.
That is, it’s getting worse before it gets worse.
Have a safe Easter.
