Stronger USd combined with approaching Australian recession are likely to be too much for the little aussie battler


Job creation in the US is finally firming more reasonably, as schools have opened up and hospitality too. 

At the same time, the Delta crisis in the US is intensifying.

While vaccination is lower in Texas, it is still at 50%. 40% of new cases are in California and Texas, but that means 60% are across the US where vaccination rates are up at 70% or better. 

Fauci is now saying what I have been saying for a long time, being vaccinated, you still need to wear masks and social distance. There is also the new variant out of Peru, which is more resistant to vaccines. I am not being a pessimist. Getting a handle on the future reality paths for the economies of the world is still influenced by cover.

The outlook, is that the US economy is about to slow, move down another gear, from that already seen. It should hold there. This is the light at the end of the tunnel, but there is a bit of a tunnel we are just entering yet again. The US will get through this, and businesses remain profitable. The initial surge in earnings now being seen however, a function of pricing freedom inflation, will also begin to fall back. 

Nevertheless, the Federal Reserve will see less and less purpose in its massive bond buying program. Tapering will happen sooner, as will rate hikes, than the market or even the Fed had imagined. This has been our central theme on US rates all along. Very different to our competitors. We see a US rate hike in 2022. 

There is no doubt the US will win the race to tapering and hikes, whenever they occur, over the European Central Bank. Hence, the move by the US dollar broadly against other currencies and commodities on Friday. All, as we have been forecasting. Except for Gold. I have been a bull on Gold and remain so, but clearly, there is more short term pain here first. Gold will eventually stabilise in a way I do not expect the Euro, Aussie or Oil to do.

AUD at risk of downward acceleration

Aug 09 2021