The Australian dollar fell again last night as the bull market for the US dollar intensified. More and more analysts support MB’s view that DXY grows and disappears as US growth exclusivity returns. To the graphs:
Aussie back to 75:
The Australian dollar has been so weak against the German marks, as well as against the euro and the Japanese yen, that we can argue that the Morrison government’s vaccination disaster is starting to weigh on Forex. The issue became big news around the world last night as the prime minister with personality disorder blamed Europe for his failures. And the Australian dollar is also falling against the pound sterling, where vaccines are doing well.
It makes sense. One of the key reasons for the fall in the euro and the resurgence of the DXY is the appropriate vaccination conditions, as well as diverging fiscal impulses, which are key drivers of their growth, inflation and monetary policy. The 10-year Australian bond yield advantage over US bonds has now shrunk to 2 basis points. It is to be expected that this is how Australia will be judged. Pawnshop:
Dollar growth in Q1 as a result of position change and reassessment of growth forecasts
As the resumption of operations matures, the US trade deficit narrows and the Fed begins to consider a reduction, the dollar may catch demand
But considering the seasonal weakness in April, the dollar is in a range. The dollar just had its strongest start to the year since 2015. We have been bearish against the dollar since the Fed symposium in Jackson Hole last August, at which Fed Chairman Powell outlined the central bank’s new inflation targeting policy. But since Christmas we are worried about the large overhang of the short US dollar and the risk of the dollar squeezing. Usually a squeeze requires a trigger, and a rapid resumption of economic growth, requiring a rapid revision of growth, was that trigger. USD leveraged short positioning in general is currently being reversed, mainly due to the rapid switching of JPY short positions to long positions (there are still large short USD positions from asset managers, but these positions tend to be are less sensitive to movements in exchange rates and are more likely to hedge assets elsewhere in the investor’s portfolio). Although growth in the US remains much stronger than in other countries, the dollar is unlikely to resume its decline. The chart below on the right shows the difference in expectations for US and EA nominal growth for the year ahead: the current spread is around 2pp, which is high in early 2017, when EUR / USD was trading in the 1.05-1.10 range. … With this growth gap, portfolio investment (and perhaps foreign direct investment if investors lose confidence in EA’s policymakers’ ability to spur any recovery) will favor the US over EA.
For this reason, it is unlikely that the dollar will resume its decline – in fact, the risks for the dollar are very high – if EA’s growth prospects do not improve. But with European countries now entering a third blockade, and Google’s mobility data for Italy already showing a reverse recovery, EA’s resumption of growth could be delayed again. Until the EA starts to see the light at the end of the tunnel, it is unlikely that the broad dollar will fall.
The double deficit of the US, currently exporting a significant amount of dollars, is likely to narrow in the second half of the year. During periods of increasing double deficits (fiscal and current account), the dollar tends to fall (see left chart above): the double deficit is currently around 20% of US GDP (we have truncated the axis in the chart above to make it easier to read). for the period before Covid); but in the next few months, the double deficit is likely to narrow, and as the chart shows, this usually coincides with periods of dollar appreciation.
First, the unprecedented fiscal support over the past 12 months is unlikely to be repeated in the next 12 (and the infrastructure bill, like a 15-year project, is a budget item with relatively little immediate impact. Second, the US annual trade deficit is approaching 1 trillion dollars, a record But as the US economy reopens, demand for domestic goods and services will crowd out current demand for imported goods Not only will the fiscal momentum intensify; the US will export fewer dollars by the end of the year.
In addition, we believe the Fed will cut back on asset purchases in December – and will tell us about it in June. We are certainly not talking about tight monetary policy here, but the prospect of less flexible policy is another reason why the dollar’s fall could have its consequences. day.
It’s not often that advanced economies are so bad that they spend their own currency out of sheer incompetence. But let’s face it, macros in the era of global pandemics are very different from normal programming. The cost of clumsiness is usually estimated at several billion and covered by the corrupt press. The vaccine failure is projected at many billions of dollars and cannot be hidden.
Thus, in Europe and Australia, vaccine inefficiencies devalue their entire national economies.
David Llewellyn-Smith is Chief Strategist at MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness, and the founding publisher and global economics editor of The Diplomat, the leading geopolitics and economics portal for the Asia-Pacific region.
He is also a former gold merchant and economic columnist for The Sydney Morning Herald, The Age, ABC, and Business Spectator. He is a co-author The great disaster of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review…
Crude Oil Jun 21 
