Aussie dollar heading for Chinese hell

DXY was closed Friday evening. Looks like it’s gathering for another spring for me:

The all-important CNY held firm on better-than-expected, albeit very poor, data:

The AUD held desperately:

Oil and gold are not doing well:

Buy base metals if you’re an idiot:

Miners flee:

Emerging market stocks broke:

The American junk is at the edge of the cliff:

The curve is a red mess:

DM actions broke:

It’s Fed week. 75 bps? 100 bps? We do not care. It’s not done.

Therefore, neither are AUD falls. Town :

We are bearish on the AUDUSD in the short term, but expect a gradual recovery in the medium term for the pair. AUDUSD will remain heavily influenced by deteriorating short-term external drivers. More downside for risk assets (we believe equity markets have yet to price in a recession from an earnings perspective, and risk sentiment is critical to AUD performance. AUD is showing the second highest average historical beta against the MXWO in the G10), a Fed that will maintain aggressive tightening and pessimism around the Chinese economy with new lockdowns and still lackluster policy support for credit and bond markets. real estate, should lead to further weakness in the AUD. China is fueling AUD momentum also through AUDUSD’s close correlation to broader Asian emerging currencies, which our emerging strategists expect to continue to weaken due to challenges in growth, manufacturing and export performance.

The RBA has also leaned dovish, and Citi Economics expects it to slow the pace of the rise to 3x 25bps this year, to 3.1% terminal rate through 2023. That compares to the OIS price spike around 3.5%, so Citi is still below the market even with a large negative revaluation since Lowe’s dovish speech at the Anika Foundation. Against the backdrop of the biggest house price decline in 40 years and an 80% variable rate mortgage market, we certainly sympathize with the idea that market pricing policy is too rich. As a caveat, we note that the correlations with the credit spreads have not moved the AUDUSD since the start of the year, but these correlations have started to increase.

Interestingly, equities had the strongest correlation to AUD in the COVID era. I guess we take this as a signal that both are unduly influenced by the same US money printing.

It is disappearing and so is the AUD.

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