Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Australian dollar roars as mighty greenback crumbles

au.investing.com/analysis/australian-dollar-roars-as-mighty-greenback-crumbles-200496930
Australian dollar roars as mighty greenback crumbles
By David Llewellyn-Smith   |  Jan 13, 2022 11:16
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

DXY crumbled last as EUR roared:

 

Australian dollar broke out:

Oil is raging:

Base metals too:

Big miners (LON:GLEN) are out of control:

EM (NYSE:EEM) stocks bounced:

But EM junk (NYSE:HYG) is going south. One of these two will be wrong soon:

The US curve flattened:

Which gave stocks a muted bounce:

US inflation is still red hot. BoA:

Consumer inflation continued to surge in December, in line with consensus expectations.

The core CPI rose by 0.55% mom, which boosted the yoy rate to 5.45% from 4.93%— the highest since 1991. Headline CPI was up 0.47% mom as energy prices dropped by 0.4% mom and food rose 0.5% mom. Headline % yoy increased to 7.04% from 6.81%— the highest since 1982.

Core goods were up 0.9% mom and 10.7% yoy. Once more the largest contribution (15bp) was from used cars, which surged 3.5% mom. Supply issues continue in the auto sector, and wholesale prices suggest further upside in used car prices in the months ahead. Outside of autos, core goods components broadly gained as apparel jumped another 1.7% and household furnishings/supplies rose 1.3% mom. Meanwhile education/communication commodities slipped for the third consecutive month, this time by 0.4%. We think the breadth of gains in goods reflects both global supply chain
disruptions and the pull-forward in the holiday shopping season, which meant earlier discounting in October.

However, as we have argued repeatedly in recent months, the surge in inflation is not just due to Covid and other distortions. There is a strong underlying cyclical pickup in prices as well, which is most evident in OER and rent of primary residence. Both series
increased 0.4% mom for the fourth consecutive month. Travel components were also very strong despite the winter Covid surge. Lodging rose by 1.2% mom and airline fares soared 2.7% mom. Given the timing of the Omicron wave, however, its impact might be reflected more strongly in January prices. Broader transportation services fell by 0.3% mom. This was a smaller drop than expected given unfavorable seasonal factors. Outside of that, services components were mixed. Recreation fell -0.1% mom, education / communication was up 0.1% mom and other personal services popped 0.7% mom. Medical care services grew 0.3% mom.

Overall, the breadth of the inflation supports our call for four Fed hikes this year, along with the start of quantitative tightening. Core inflation is likely to peak in March 2022, after which the yoy comparisons will turn highly unfavorable. But the key question is where core inflation lands in the medium term. And increasingly the risks are that it will land closer to 3% than the Fed’s 2% target.

The rates market generally looked through the close to consensus print. The nominal curve flattened slightly, inflation breakevens were 2-3 bps lower and real rates 1-2 bps higher. The modest declines in inflation breakevens across much of the curve suggest that the persistent components of the print may not have been as strong as feared, though overall the print still endorses a sooner and more aggressive Fed policy response.

The data point for the night was weak Chinese inflation and credit.

Yet DXY was smashed. Partly this is stretched positioning. But one can’t help observing that these moves are precisely what I expect to come later this year as the Fed overdoes it while China keeps up the stimmies.

Are markets already looking through Fed tightening to the economic sag afterward for the US, while looking through the Chinese economic sag to a hopeful boom afterward?

Given that paradigm only drives more inflation via commodities it guarantees that the Fed will have to go even further and risk crushing the cycle to end the stagflation lunacy that has grabbed markets.

God knows, nothing would surprise me anymore!

Australian dollar roars as mighty greenback crumbles
 

Related Articles

Australian dollar roars as mighty greenback crumbles

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 Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
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?
 
Post
 
Replace the attached chart with a new chart ?
1000
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 Investing.com'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
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email