AUDJPY: The Cake is Baked

Well, the RBA just decided not to increase rates.

Recently, China decided to tighten up capital requirements for lenders.

Also, there has been talk of taxing or otherwise restricting carry trade activities.

Lest we forget, recent news in Australia is mixed.

The US market has been skittish.

Emerging markets have been very skittish.

So, what am I trying to say?

I'm thinking the cake is baked. You might want to let the dust settle from the RBA decision -- but I think we have become overly pessimistic. We are so pessimistic that all the bad news and presumptions of bad news should soon be baked into the price of the AUDJPY.

All we need now are some upside surprises...

UPDATE: It's thursday morning and we are having a nice panic day apparently due to a less than stellar jobs report. I think the panic is unnecessary but I do understand the lynchpin that is being attacked here. If jobs don't come back then how can the economy recover? However, I think they have it backwards, as we do see spending continue to recover, which should after a lag lead to jobs. Obviously, the market can stay irrational far longer than you can remain solvent, so don't jump in just because you have a long term belief (as I do).

I guess the cake is baking, but not yet ready to come out of the oven.

Fundamental Conjecture

Something to keep in mind when you consider where the currency markets will be heading in 2009.

It appears that the Obama stimulus package will contain a $250,000 write off for business expenses. This is huge. Smaller businesses, when generating expenses, are not generally spending their money outside of the US. Vehicles, machinery, tools, raw goods or whatever else is eligible for this tax change will quickly represent income to other domestic businesses.

This is big.

Additionally, it was just reported today that mortgages on primary residences will soon be allowed to be adjusted during bankruptcy. According to some pundits this is a very large win as it is actually supposed to be better for the banks -- compared to a foreclosure. Not to mention the fact that if this done, greatly reducing foreclosure events, the downward pressure on housing prices will be released.

This is also big.

Finally, though it sounds like an insignificant item, Obama mentioned the need to restore trust in the financial system. Perhaps you are not aware, but the only thing that allows people to trade and exchange money via markets is trust. If you don't trust that you'll get a fair trade, receive ownership, or be protected to some degree from swindles and excess, then why in the heck would you put your money at risk?

This is perhaps the biggest item. However, don't be surprised if this item turns into political fodder as ideologues argue against it. What these ideologues often forget is that free markets simply require a level and trusted playing field. Rules are fine -- as long as they're enforced reliably for all players.

Don't forget that!

US Durable Goods / Jobless Claims

The numbers came out weak this morning.

While it appears to have caused some initial softness, I think we should keep in mind that a weak US economy gives the Fed additional room to lower interest rates without fears of inflation.

So, personally, I might consider buying into weakness...