Australian dollar rocked by oil shock

DXY is breaking out:

AUD U-turned down:

CNY is the definition of unconvincing:

Oil is about to rock the global economy:

Perversely, it took commodities with it, presumably on an inflation play:

Big miners too:

Junk didn’t like it:

As yields bear steepened again. If oil is inflationary then the Fed will have to chase it so this should turn bear flattening before long:

Stocks froze in fright:

US jobs data was decent but revisions were poor:

Total nonfarm payroll employment increased by 187,000 in August, and the unemployment rate rose to 3.8 percent, the U.S. Bureau of Labor Statistics reported today. Employment continued to trend up in health care, leisure and hospitality, social assistance, and construction. Employment in transportation and warehousing declined.

…The change in total nonfarm payroll employment for June was revised down by 80,000, from +185,000 to +105,000, and the change for July was revised down by 30,000, from +187,000 to +157,000. With these revisions, employment in June and July combined is 110,000 lower than previously reported.

ISM was still weak:

“The August Manufacturing PMI® registered 47.6 percent, 1.2 percentage points higher than the 46.4 percent recorded in July. Regarding the overall economy, this figure indicates a ninth month of contraction after a 30-month period of expansion. The New Orders Index remained in contraction territory at 46.8 percent, 0.5 percentage point lower than the figure of 47.3 percent recorded in July.

Which would have squashed yields and dropped DXY.

Instead, oil broke out and took DXY with it. DXY has been sympathetic to oil over the last decade as its role as the marginal cost producer in shale took shape.

Moreover, the correlation between oil and US inflation recently has been crazy:

There is plenty of oil. But OPEC has the squeeze on. If it continues, this story writes itself:

• The Fed cannot look through it given broader inflation. It will have to hike into it.
• Oil, US yields, and DXY will all roar together (before long I’d expect the curve to start flattening on Fed fear).
• EUR, CNY and EM currencies come under even more pressure.
• The latter are all squeezed by an oil price shock and capital outflow.
• A global recession is the outcome

AUD is caught in between given commodities may rise with oil but it will still fall versus DXY.

If so, a nasty shock is coming to the petrol pump to finish off the Aussie consumer.