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US bond yields, dollar fall as Fed hawk Waller delivers dovish leaning speech. Australian nominal retail sales contracts for first time in 4 mths; RBA done?

Currencies / analysis
US bond yields, dollar fall as Fed hawk Waller delivers dovish leaning speech. Australian nominal retail sales contracts for first time in 4 mths; RBA done?
dove and hawk

By Stuart Talman, XE currency strategist

Falling bond yields, dollar weakness, stronger risk sensitive assets……this mix prevailed through Tuesday's sessions as multiple Fed Governors shared their latest thoughts on the US economy, inflation and the potential path for the Fed funds target rate through the first half of 2024.

The final FOMC meeting for the year will be held on 12-13 December.

Fed Chair Powell and his colleagues increasingly looked to have delivered the final rate hike of this cycle on 26 July given the observance of disinflationary forces  and a labour market that whilst still tight, has modestly cooled through the second half of the year. 

Fed Governors and FOMC voters Michelle Bowan, Austan Goolsbee and Christopher Waller participated in a busy day of Fedspeak with the latter inducing the more pronounced market reaction.

The yield on the benchmark 10-year note fell to a fresh 2-month low as Waller delivered his prepared remarks, falling through 3.34%. Six weeks ago, the 10-year yield ripped to a 16-year high through 5.00% as a run of strong third quarter macroeconomic data suggested that additional monetary tightening may be required to return inflation to the Fed's 2% target.

The USD dollar has suffered from the 10-year's ~70bps reversal through late October and November, the dollar index (DXY), crunched over 4% from its 01 November peak.

The risk sensitive New Zealand and Australian dollars have outperformed, producing significant bullish outcomes this week - the antipodeans breaking above their respective 200-day moving averages for the first time in four months.

Mostly ranging between 0.6080 and 0.6110 through Asian and European trade, NZDUSD was catapulted through the late New York morning as Waller delivered his speech titled Something Appears to Be Giving.

Following last month's speech, titled Something's Got to Give, Waller commented at the American Enterprise Institute event in Washington:

I am encouraged by what we have learned in the past few weeks—something appears to be giving, and it's the pace of the economy. Data for October indicated an easing in economic activity, and forecasts for the fourth quarter show the kind of moderation that is more in keeping with progress on lowering inflation.

Regarding current policy settings, Waller shared: …..I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2 percent.

A prominent hawk, the tone of the Waller' speech, in some respects, was notably dovish, the market clearly receiving it as further evidence the Fed's tightening cycle is done, in turn predicting rate cuts to commence in late 1H, 2024. 

The Kiwi climbed from near 61 US cents to mark Tuesday's intraday highs a few pips shy of 0.6150, its highest level since early August.

Referencing the July to October NZDUSD sell-off, having cleared the mid-point (0.6092) of this range on Monday, the next upside hurdle presents at 0.6168, the 61.8% Fibonacci retracement.

Having leapt higher by over 4% during the past 11 trading days, the Kiwi has entered technical overbought levels….it would not surprise to see topside momentum evaporate around the 61.8% Fib level.

Waller did caution it is too premature to declare victory over inflation, further commenting:  While I am encouraged by the early signs of moderating economic activity in the fourth quarter based on the data in hand, inflation is still too high, and it is too early to say whether the slowing we are seeing will be sustained.

Next week's US employment report and the November CPI data (12 DEC.) will provide critical evidence as to a further slowing in economic activity.

In other news from Tuesday, retail sales across the Tasman have fallen for the first time in four months. Printing at -0.2% (vs +0.1%, expected) household spending in Australia has cooled following a spike induced by one-off events such as the FIFA Women's World Cup.

Considering still elevated levels of inflation, real retail sales (vs nominal) remain negative. Further adjusting for the recent spike in net migration, real per capita retail sales are down by around 4% year-on-year.

Typically, falling per capita retail sales would lead to lower inflation, however this has not been the case for 2023 as rents continue to climb and consumers pay more for a broad mix of services. At 5.2%, the RBA's preferred inflation gauge - the trimmed mean measure of core inflation remains uncomfortably high.

The RBA will be hoping for a soft outcome for today's monthly CPI data, expected to fall from 5.6% in September to 5.2%.

The Kiwi continues to range trade against the Aussie, chopping around in the low to mid 0.92's.

We’re likely to observe lively NZDAUD price action today as the RBNZ interest rate decision joins the AUS CPI data as a significant volatility inducing event.

Given the on-hold decision is a foregone conclusion, the focus will be on the accompanying statement and forecasts and whether the RBNZ pushes back against market pricing that currently assigns three 25bps cuts for next year.

Given last quarter's downside inflation miss and notable cooling in the labour market, the RBNZ is likely to strike a more dovish tone relative to the past few months.

Key offshore events for Wednesday include CPI for Germany and the next update for third quarter US GDP.

Given the Kiwi's ascent into overbought territory and the potential for the RBNZ to deliver a dovish on-hold decision/statement/forecasts we suspect NZDUSD may pull back through 60 US cents.

Stuart Talman is Director of Sales at XE. You can contact him here

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What does “energy transition” mean?

  • “You have a billion people that burn firewood to live. They have no access to electrical energy.”
  • “We’re burning more coal and more oil today than in the history of the world.”
  • “We spent $4T putting up solar panels for hydrocarbons to still capture 83% of energy source.”
  • “You’re not going to stop global warming by buying an electric car.”

On electric cars and EV batteries

  • “With current lithium-ion technology, the destruction we cause, the global warming gas we cause, we might as well sit on our chairs and do nothing.”
  • “You just bought your wife a coal-burning car by buying an EV.”
  • “The current generation of EV batteries will be toast in 2-3 years.”
  • “I would short every lithium company in the world.”
  • “We’re going to kill the lithium hydroxide business over time.”

Common metals vital for the transition

  • “If we’re going to have a transition, we need common and abundant materials. We can’t rely on things like nickel.”
  • “The batteries they’re making now are low-grade lithium metal. You don’t need nickel, cobalt, graphite, They’re out the window.”
  • “You want batteries made out of common materials so billions of people can use it.”

Womb to tomb examination of net zero

  • “Look at the whole system if you’re trying to eliminate global warming.”
  • “The Chinese are saying 2060 and India is now saying 2070. What does that tell you?” “There’s zero chance that the twelve major automakers will find enough nickel to make their batteries.”
  • “The amount of metal we need doesn’t exist currently in a way that’s green or sustainable. It’s apparent to any readily intelligible person.”
  • “How can we stop burning coal and oil and not have an energy transition?”


Two competing paradigms

  • “We have two competing tribes. One tribe says ‘I want to save the world, I’m green, I need cobalt, nickel, platinum, or palladium’. The other tribe says ‘Holy shit, the Army/Navy wants these metals for national defense.'”
  • “The intensity of metal demand in conflict is beyond your wildest imagination. In WWI you needed a telescope to see the price of copper.”
  • “So we’re heading to a world where both tribes have a strong demand for more metals. We’re balkanizing the world into two camps and its tearing the global supply chains apart.”

A very difficult time

  • “It does appear that the world is warming, and there’s zero chance we’ll reduce that. The question is how bad will it get?”
  • “I was in CA recently, it was $6.20 per gallon. The average citizen is pissed off.”
  • “I agree with Jamie Dimon that this is the most dangerous time since I’ve been alive.”
  • “The Fed are idiots. They told us that inflation was over. And it’s not even close.”

We need to reinvent the mining industry

  • “First of all, we have to try to mine in the United States. No intelligent person has tried to do that in the last few generations.”
  • “Everything is blown out of proportion because mining is viewed as a bad thing.”
  • “We also have to determine what metals we actually need for the future. Which is copper.” “Imagine you’re plugging an EV w/ 1MW charger. Our grid is literally a 110 year old lady waiting to die. The Chinese tell me it will take $21T to rebuild the electrical grid.”
  • “Our grid is like balancing a pencil vertically on your palm. There’s no storage there.”
  • “The symbol of the US, the bald eagle, is flying into offshore windmills. They’re just chewing them up. Who wants to live near them? They’re very low density.”
  • “At least real miners know how hard it is to actually find metals and mine it.”

Energy consumption


  • “A Google search requires 1,000 joules of electrical energy. You think it’s free, but it’s paid for by advertising.”
  • “You think the internet is green? You know how much energy it requires to use AI/ChatGPT? You think Bitcoin/crypto is green?”

Importance of copper

  • “I don’t know if we need gold. But I do know we need copper. And we need it really badly.” “Having said that, I’d rather there be gold in my copper. Because people will always want gold.”
  • “People are getting rid of their excess copper because they’re de-stocking to reduce their interest cost. But we’re nearing the end of de-stocking and paper selling.”
  • “This huge clash is coming between Army, Navy, Air Force and the Greening of the world economy. And the miners have an unbelievable burden to make that happen.”
  • “At the same time we need these metals, it’s harder to get the equipment needed to mine the metal!”
  • “The miners have a very important role to play to supply the world with the metals it desperately needs.”

Importance of Saudi Arabia

  • “If Saudi Arabia can’t maintain basic energy security, we’ll have $200-$300 oil. We need stability in that pricing. At $100-$300 oil, people in Egypt don’t eat.”
  • “Saudi is playing a beneficial role by keeping oil between $70-90 per barrel.”

Audience Q&A

  • “The valuation of the mining industry relative to the S&P 500 is the lowest in living memory. The general person thinks that mining is evil and must be eliminated.”
  • “50% of what goes into an EV is hydrocarbon. If we stopped producing oil, half of humanity would die from starvation.”
  • “I don’t think we understand how formidable the Chinese are.”
  • “In a Balkanized economy, we went from a Just-in-Time supply chain to a Just-in-Case supply chain.”
  • “How much metal do we need to build nuclear reactors?
  • How much steel, concrete, rebar, nuclear engineers do you need to build these things?” “The problem is that the world economy is Balkanized. Where is the steel coming from? Where are the pumps coming from? The French want nuclear power, and the Germans are burning coal. Even within Europe, its Balkanized. That’s all I see.”
  • “I think the mining industry needs to defend itself more. Where do you think stuff comes from? There’s the hardware of the mine (tons, grade, engineering). Then there’s all the people around the mine (locals). There’s invariably a clash with the locals around the mine. Unless they’re buying into it, it’s not going to happen. That’s the software around mining.”


On knowing where things come from

  • “People don’t realize where things come from. As people live in urban environments, they forget where things come from.”
  • “We need to communicate the importance of mining and humanize it as an activity. We need to mine in the United States. We need to figure out what should be mined, where we’re allowed to mine, and how.”