The world is desperately in search of safe-havens. Countries like Denmark are having to impose negative yields to repel intrusive hot-money flows. Where’s one to hide?
Increasingly, Australia is becoming the safe-haven of choice. Central banks and European elites have been moving money down under for the last several months.
To me, there is a whiff of boom/bust going on in Aussie at the moment. The timing of the hot-money could not be any worse, coming amid a dramatic slowdown in Chinese growth such that the PBOC has seen fit to cut interest rates twice in under a month.
The Aussie boom has yet to turn to bust but the cycle top may very well be in place. The world is awash in cheap Asian labor while demand is very much on the decline in the developed world. As an exporter of raw materials to China,which has built massive stockpiles of , Australia is extremely leveraged to China in a micro sense and the global economy in the macro sense.
The market remains confident that Australia can weather the slowdown but confidence is easily lost. At nearly 1.03, I think the market is far too complacent.
