Australian dollar crash resumes

When DXY goes parabolic like this, all bets are off. EUR is s crashing comet:

DXY

AUD took out closing support like it wasn’t there. It’s free air down to the 61 cents 2022 bottom now:

AUDUSD

CNY is going nowhere:

CNYUSD

It will take very serious volatility to stop oil:

BRENT

Base metals are signalling it:

COPPER

Miners clawed higher:

RIO

EM stocks are screwed:

EEM

Junk is rolling into a dive:

HYG

As the bull steepening threatens to turn unruly:

YIELDS

Stocks were whacked, bounced and sold to neutral:

SPX

BofA sums it up:

Higher oil = more EEMEA FX weakness

EEMEA FX has room to weaken more

The increase in oil prices is likely to raise volatility and, hence, the risk premium with a lag. Since COVID, the broader USD has become positively correlated with oil prices, particularly when they increase because of a cut in supply. EEMEA FX is unlikely to do well against such a backdrop given that all countries in the region are net oil importers.

As we know, AUD is really an emerging market, so it follows EEMEA.

On top of that, we have higher for longer in the US. Credit Agricole (EPA:CAGR):

Recent client meetings have highlighted that there is an emerging divergence between investors’ and central bankers’ views on the drivers of global long-term yields. In particular, many market participants think that the developments are at least partly driven by concerns about growing imbalance between debt supply and demand. That being said, recent comments by Fed, ECB and BoE members have suggested that they believe the price action at the long end of the curve reflects the market pricing of ‘higher for longer’. As a result, the major central banks do not see their QT policies as aggravating the tightening of global financial conditions and thus their detrimental impact on global growth and risk sentiment. Against this back drop, risk assets and risk-correlated currencies could remain very vulnerable to further escalation of global yields. At the same time, the high-yielding, safe-haven King USD should remain in demand.

I don’t agree that supply matters to soverign debt. Treasuries are price makers, not takers. But I do agree that QT will matter to tightening efforts, more via equity than credit.

Indeed, we are fast entering territory in which stocks could crash. The FCI is surging:

US FCI

DXY plus the European and Chinese downturns, are already going to hit earnings, especially in tech.

Add the yield back-up and stock market multiples need to come down, a lot.

It could happen very fast.

If so, the DXY parabola is an early signal of a coming moonshot, and AUD is going straight to hell as capital bolts for the safe haven.

No standing short will stop that.