AUD: The commodity currency

AUD & the drivers

One key to understanding the AUD well is not only how the central bank policy impacts the AUD. It is also how other markets impact it. This article will outline some of the major influences that go into the Australian dollar.

Influence #1 China

China is the world’s second largest economy. It is also the largest export market for Australia. This means that good news for China is also good news for Australia. The relationship means that sometimes the AUD is traded as a proxy for the Yuan. Expect good china news to lift the AUD as a general rule of thumb.

Influence #2 Iron Ore

Recently AUD prices have been heavily sold as China cut down on its steel mills usage. Iron Ore makes up around 20-25 % of Australia’s total exports. Around 80% of these go straight to China. So, you can see how influence 1 and influence 2 are correlated. Strong Iron ore prices is a positive for the AUD and vice versa.

Influence #3 Coal

Again another top export for Australia making up around 12-17% of total exports depending on your source.Recently notice that whereas Iron Ore prices have been falling, coal prices have been rising. See chart below

AUD & the drivers 

Influence #4 Gold

Gold mining is big business down under and around 5% of total Australian exports come in through the precious metal.

So, as well as considering the influence of the Reserve Bank of Australia and the USD make sure you include these other influences.


Federal Reserve Chair Powell and San Fran President Daly to speak Friday

Federal Reserve Bank of San Francisco President Mary Daly will take part in a conversation:

  • “Facing an Uncertain World: the Federal Reserve and Climate Change Risk”
  • This at an event hosted by the American Enterprise Institute
  • at 10am US ET time, which is 1400 GMT
Following at 11am US ET time, 1500 GMT, is Federal Reserve Chairman Jerome Powell
  • to participate in BIS-SARB Centenary Conference panel discussion before Virtual Bank for International Settlements-South African Reserve Bank Centenary Conference.
Federal Reserve Bank of San Francisco President Mary Daly will take part in a conversation:

You Are Not Your Trades

It’s also crucial to remember that you are not your trades. You may want a particular trade to happen, but it doesn’t mean it will go the way you initially thought.

So try and stay away from those “if only” thoughts because those can mess with your emotions.

One of the most important things for traders is not to take their trades personally. This might seem difficult at first because there are real money consequences when it comes to trading, but it’s important to remember that you are not your trades.

Your feelings about what happens don’t affect the market itself, so try to separate yourself from your trading decisions.

What does “Memento Mori” mean?

The most successful generals in ancient Rome were awarded a “triumph” entry into the capital city on their return from victorious campaigns. It was a magnificent spectacle and parade that was meant as a ceremony to honor and appreciate the war won by a commanding general. The triumph was the biggest tribute awarded to a military commander in Rome. It was usually the peak of a general’s long military career. It was a thank you from the legions and population as an act of appreciation and respect.

While this was created to reward the current general and help motivate future generals aspire to greatness it worried the Roman senate that this could cause a general to grow too ambitious and power hungry. The senate had an idea to help keep a general’s ego in check during this process. While the honored general would be in his chariot adored by the Romans, a slave would remain sitting behind him and whisper in his ear “Memento Mori”. Many believe that this was had a larger meaning like many Latin phrases and could be fully translated into English as “Remember that you are a mere mortal and that you will die one day.” This phrase was said by a mere slave to remind the ambitious general that power and fame aren’t permanent, and that he would eventually die.

This was done to create a realistic perspective for someone who at the height of their power and success may be deluded into thinking they are a god or invincible. It was hoped to keep their ambitions in check as they realize they could go from a god in their mind to a corpse in a grave in a short amount of time. 

This is a good reality check for traders, investors, executives, entertainers and politicians who have the delusion of invincibility that could lead to arrogance causing them to fall from the pinnacle of success to the rock bottom of failure and even in some cases death. 

Remembering that you are a mortal and will one day die can help you keep a realistic perspective during your greatest success. Pride comes before the fall but staying humble can keep pride from becoming a weakness. 

Nissan Motor will slash planned global production for October & November by 30%

Nikkei with the report on the impact of the semiconductor chip shortage on Japanese automaker Nissan.

Nissan stopped operations at a U.S. plant for two weeks in August due to stalled semiconductor output in Malaysia. On the other hand, September vehicle output exceeded forecasts (conservative forecasts though)
Nikkei notes also:
  • Honda Motor expects to cut production by 10% at each of its three Japanese vehicle assembly plants in early November.
  • Toyota Motor’s to reduce global output by 15% in November

Putin said OPEC+ countries are increasing oil output a bit more than agreed

Russian President Vladimir Putin said the OPEC+ group of leading oil producers was increasing output slightly more than agreed, but:
  • “Not all oil-producing countries are in a position to ramp up production quickly”
Putin also provided some broader background comments, none of this is new but a useful recap if you need:
  •  “From 2012-2016, investment in oil production totalled around $400 billion/year, and in recent years, even before the pandemic, this decreased by 40%, and now it amounts to $260 billion”
  • said that investment cycles for energy projects are 15-30 years
Underinvestment is contributing to the recent rise in prices for oil.
Oil price update:
Oil news out of Russia overnight

BITO bitcoin ETF is headed for trouble with position limits looming

Bitcoin ETF has used up two-thirds of its position limit

Bitcoin ETF has used up two-thirds of its position limit
Bitcoin is down today so there might be some flows out of the new US bitcoin ETF (BITO) that launched on Tuesday. The larger problem is that it is destined to run into position limits. According to Bloomberg, it can only hold 5000 futures contracts due to CME rules and is already two-thirds of the way there. Another $600m would get it to the limit.
An option is to buy longer dated contracts but that’s going to introduce a negative tracking error with long-dated futures trading above spot. I don’t see the volume slowing down so eventually this is going to be a big problem.
This all comes back to the SEC, which has tried to shove everything into the futures market to please the people at the CME. In something like oil — which is extraordinarily difficult to store, transport and physically transact — a futures-based ETF makes sense but in bitcoin it’s stupid.
An ETF holding ‘physical’ bitcoin is obvious and should have been approved five years ago. There’s no tracking error and it would have alleviated so many problems with scam brokers and the huge tracking error in the Greyscale bitcoin trust. Hopefully this expedites it.
In any case, it makes you wonder why every decision seems to benefit the CME.
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