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Australian dollar eaten alive in bear frenzy

Published 15/04/2024, 08:36 am
Updated 09/07/2023, 08:32 pm

DXY is up and away:

AUD is back at critical support:

North Asia is under intense pressure:

Oil and gold hanging in there:

Base metals still chasing no landing:

But not big miners:

And EM hates no landing:

So does junk:

Yields fell but it was a steeper week for sure:

Stocks hate no landing:

The AUD bear frenzy on CFTC eased slightly last week:

But it is still a massively short position that usually weighs against significant moves lower.

Yet, here we are, with the AUD falling on a range of indicators giving markets nightmares about a ‘no landing’ scenario in which inflation re-accelerates:

  • global PMIs are lifting;
  • Chinese activity Q1 is firm;
  • US activity is strong, and inflation is firming;
  • oil and commodities are rising to meet both.

However, equally, I can argue it is all a head-fake:

  • the global PMIs recovery is narrow and very chip-related;
  • Chinese activity is an inventory build and about to re-sag;
  • a deleveraged US private sector has been taking its price signals from stocks, not yields, juicing wealth effects and AI exuberance, meaning a stock correction will snuff it out;
  • oil is up on war risk in Ukraine and Israel, and other commods are sucked into its inflationary slipstream.

One is a ‘no landing’ scenario. The other is a ‘mungrel landing’ as various signals make a mess of everything.

If it is the former, then AUD is going to new lows as the Fed doesn’t cut or even hikes again.

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If it is the latter, then AUD will oscillate in its mid-65 range.

I think the base case is still the second option.

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