Goldman with the note.
Our Thoughts on USD, CNY, USD/Asia, JPY, GBP, CHF, RON & Globa Asset Reallocation USD: Smile, big and wide.
There are two themes running through macromarkets.
First, and a bit more structurally, investors are conscious that the resilience in hard data thus far is not surprising, but still believe it will not last.
However, risk-off and short Dollar expressions versus safe havens will have a natural “negative carry” flavor until that tension is settled, like the recent drift in June FOMC pricing and USD/JPY.
Second, and contributing to this buoyancy in risk sentiment, the trade war has progressed to the point where policymakers seem eager to show some payoff.
Even though there are reasons to be skeptical—the US and UK have been working on this trade deal for years, not weeks, and a 10% stopping point is not encouraging for other jurisdictions given more significant imbalances—it will be hard to ignore the policy intent of setting a more positive tone.
In this environment, it is sensible to us that some of the negative Dollar sentiment has cooled.
But we think it is important to note that Dollar depreciation has not stalled—it has shifted from the DXY to the TWI (Exhibit 1).
We are currently witnessing a demonstration of why US assets have proven to be so attractive to so many for so long.
But not in a good way.
US exceptionalism was built on transparency and the rule of law. Put another way, these are the lineaments of a risk-free asset. One you can value in all circumstances because you can trust all national institutions – executive, bureaucracy, law, military (let’s call it “constitution”) – to operate according to predictable rules with cross-referencing checks and balances.
If you are investing billions or trillions, the probity of this structure is all that matters. That your money remains money.
This institution of truth in value is the real US exceptionalism. Threaten it, and you threaten the very basis of money as it is expressed in the American empire.
Yet, the art of the deal is the total opposite of this. It is to project success regardless of outcomes, whether those outcomes violate the law or not, whether they are successful or not, so that your assets keep going up in price and you can service your debt and repay with fake money.
To wit. Bloomberg.
The US and China both reported “substantial progress” after two days of talks in Switzerland aimed at de-escalating a trade war, marking what Chinese Vice Premier He Lifeng called “an important first step” toward resolving differences.
While neither side immediately announced specific measures on Sunday, He said the world’s two biggest economies agreed to create a mechanism for further talks, led by US Treasury Secretary Scott Bessent and himself. Bessent said the US would share details on Monday and He promised a joint statement.
I see no progress. I see lies to shore up the child president. And every mistruth eats away at the foundation of moneyness that the “art of the deal” ironically professes to represent.
Add Trump’s balls-deep exposure to crypto, and you should be getting some idea of what I mean.
The AUD is going to get pushed around as this graft continues. Does it have enough “constitution” to be “real”?
In a limited commodity sense, perhaps, but surely not enough to rise on its own moneyness merits.
The word that springs to mind is “gold”.
To the extent that AUD has exposure to that, it has “constitution” but not much more.
