Breaking News
Get 40% Off 0
🔎 See NVDA's full ProTips for an instant risks or rewards Claim 40% OFF

Australian dollar hosed
Australian dollar hosed
By David Llewellyn-Smith   |  Dec 05, 2023 10:43
Saved. See Saved Items.
This article has already been saved in your Saved Items
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio

Don't look now but DXY is back in the saddle:

AUD put in an impressive shooting star reversal:

Gold got whacked, oil looks like it wants to retest the lows:

Dirt was hosed:

Big miners puked:

EM (China) is dead and buried:

Junk stalled:

Yields popped:

Stocks dropped:

There was no particular data point, but a pop in SOFR reminded markets that QT and tightening are ongoing even if it wishes otherwise. Charlie McElligott at Nomura:

In my view, and being grotesquely over-simplistic, the impulse higher in the Friday SOFR fix was characteristic of “higher level of funding volatility” at the very least, and a likely function of QT slow-drip impacts and a shift within sponsored-repo funding, which may finally beginning to pass-along costs to end-users…which is certainly related to- and meaningful into the year-end turn.

At the very least, this SOFR fix is showing signs of deteriorating liquidity / tighter funding into YE, which is probably a fair-signal for today’s “De-Grossing” flows from recent Macro and Thematic “trend trades,” as higher funding / deteriorating liquidity is only further incentivizing monetization of “winners” and / or closing out of “losers” at this point in the PNL year, as performance is looking to be protected (and / or late-comers are getting “stopped-out”).

So Bonds / STIRS selling off meaningfully…Gold smashed lower….USD squeezed higher….and broad Equities Index lower too, although the reversal there is more about the multi-month Themes trading backwards instead of absolute Spot Index level per se:i.e. where“Momentum” longs in say Quality / AI / Secular Growth / MegaCap Tech are all getting hit substantially, while heavily shorted / underweighted Equities in economically-sensitive Small Caps and “Cyclical Value” factor, heavily shorted “Leveraged Balance Sheet” and “Low Quality” (e.g. Unprofitable Tech now +10% in 2d, LOL) are all squeezing sharply. De-gross.

In other words, today is much more about a risk-management exercise to protect performance (monetize “winners” for what you can, in a PNL-challenged year) as YE liquidity begins to dry-up while funding volatility shows signs of life….than what would be yet-another shift in the tactical market narrative…i.e. I still don’t see Equities Index moving much at the very-least into post Op-Ex unclenching, unless of course we were to see this Rates / Bond selloff pick-up steam in short-order….

Although YES (and somewhat turning the page on the above observations), the low Delta—but largest “shock / reversal risk” to 2024’s currently consensus “Dovish Fed cuts on immaculate disinflation (and not recession)” softer-landing market views—would theoretically look extremely similar to today’s “reversal flows”(Bonds down / Yields up, Bear-flattening, USD higher, Equities thematic reversal Cyclical Value & Low Quality over Secular Growth Mega Cap High Quality), in the case we were to see yet another “Animal Spirits” data & inflation reacceleration surprise in, say 2Q24, off the back of all this recent FCI easing allowing the economy—and more imporantly, inflation—to “re-heat / stabilize sticky higher,” to the hypothetical extreme chagrin of the Fed.

I see FCI indexes as the chop overlaying the tide of interest and QT. So long as the latter has not been going out too fast, or has been offset by fiscal, then chop can appear to be the driver of underlying economics.

But if the tide is genuinely going out then chop only serves to disguise the fact and will catch down in due course.

What does this mean for forex? It remains my that the US economy is going to slow more meaningfully than most think into 2024 as both public and private credit recede (soft or hard landing). Without rate cuts sooner rather than later the chop of markets that drive FCIs will follow.

That means volatility while markets figure it out!

Overall, AUD is still more likely to move higher in the months ahead but it will be bumpy.

Australian dollar hosed

Related Articles

Chris Becker
20.02.24 Macro Afternoon By Chris Becker - Feb 20, 2024

Asian share markets are in caution mode as they await the reopening of Wall Street tonight with mild losses across the region. The USD is slowly fighting back against some of the...

Australian dollar hosed

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email