I mentioned this currency because of its ties to the commodity sector in general. While it is not an exact relationship, the Australian Dollar as a general rule of thumb tends to perform strongly when commodities are in a rising trend. This is because of the nature of a large part of the Australian economy, which is involved in the production of raw materials. Remember, it was soaring Chinese demand for commodities across the board which helped fan the flames of Australia's economy and contributed to its growth. With Chinese demand apparently slowing somewhat, Australia is feeling the impact. Just this week the RBA lowered interest rates there and brought about a wave of selling into the currency as a result.
Today we are seeing across the board weakness in the commodity sector with hardly a single commodity in the green except for copper and feeder cattle, which are moving higher on the bearish USDA grain reports. That is resulting in more selling of the Aussie. Even the Canadian Dollar is lower today as it too is getting some residual selling coming in as commodity prices, most notably, crude oil are sinking.
This is what makes the move in the interest rate markets even more interesting. The Goldman Sachs Commodity Index (GSCI) is really taking it on the chin in today's session even as interest rates soar higher. One has to wonder which one of these signals is more accurate right now. So far the macro funds are jettisoning commodities as the strong US Dollar has their algorithms selling across the board in the sector. If however, some begin to suspect that the Central Bankers might just get their wish of generating "benign" inflation, then we might see some bottoms forged in the commodity sector although that is way too premature to look for at this point in time. It is just something that we will see if and when we do get a solid shift in sentiment towards inflation and away from deflation.
I might make a note here and tell you that the weakness in the Yen is beginning to impact consumers over in Japan. A large number of products are imported into that country, particularly energy, and with the Yen collapsing, the cost of those imported goods is rising rapidly. This is no doubt the reason that we are seeing such volatility in the Japanese government bond markets over there right now.
Abe and company are getting their wish - they are going to win the battle against deflation no matter what, but the "no matter what" is that which should worry the citizenry over in the land of the rising sun.
This is a point that I have trouble grasping.
ReplyDeleteWhen a country devalues their currency it is so they can export more of their goods...however..it also increases the cost of making those goods for the raw materials to make them. So where is the advantage to the Japanese?
I have read where you will know when inflation kicks in when what you want is cheap, and what you need gets expensive.
If the western consumer is coming alive would this not put upward pressure on commodities? Or has the FED performed another miracle? First we have a jobless recovery and now we will have a commoditieless (not sure how to spell that one) recovery.
Everyone has money for a new iphone and a trip to Disneyland...food?..who cares about that? just like oil we have too much of it!
I believe that the Gangs of New York will in turn destroy each and every sector/industry one at a time.
We have a group of sociopaths with unlimited power and wealth. They have the full backing of the FED's printing press.
This is scary stuff.
We already live in a society where by the only necessities in life are unnecessary things.
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