I know there are more than a few of you that have been disappointed not to see an Economist piece this week...but crikey, it was a bit of a snoozer this week. On the cover….the German current account surplus? This is breaking news? Next week...Leicester City closes in on the title….I wonder if they kept this one in the hopper for the week when there simply wasn’t anything else to talk about.

Getting down to business...Yellen delivered the requisite “kinda, sorta, we mean it, but we are looking at inflation” speech that should be standard issue by this point, but seemed to catch the market a little off guard, or perhaps more accurately, gave a few fast money types an excuse take some chips off the table before that two-weeker in the Hamptons.

Meanwhile, Bunds didn’t really decide what to do with themselves...but the day is coming. You don’t see this kind of selloff every day--tough to believe this is going to be the new range. Seems more likely to me we’ll see a consolidation back towards the 40-50bp range until we get a better clue on the next moves for the ECB, or more data on growth, inflation, etc.

Meanwhile, Canadian rates followed along reluctantly--tightening 2-3bps in the belly after Poloz went ahead and pulled the trigger on the first rate hike since The Red Green Show was still on the air. The media rhetoric on the statement was relatively neutral, no real smoking guns--no mention of housing prices, and some emphasis on the broad-based nature of the recent pickup in growth.  

I haven’t torn apart the quarterly report yet, but I am looking forward to it! In the statement, the fact Poloz wanted to highlight “recent data has increased confidence the economy will continue to grow above potential” is important, since it was the lack of momentum to close the output gap that caused the BoC to keep kicking the can down the road on rates normalization.
That gives us a nice segue into FX...CAD continues its impressive run, weighing in as the G10 champion since the global rates selloff began on June 23.

Commodity currencies aren’t really moving together--CAD obviously leading after the bike, but some diffusion between AUD, NZD and NOK as well.

AUD stands out a bit for me here. The industrial metals Australia cares about aren’t doing much...and are holding in near YTD highs despite the downward pressure in energy prices. Natgas exports mean that fall in energy prices isn’t a big a boon to terms of trade as it used to be, but it is still positive.

Given Yellen didn’t really say much to throw cold water on the Fed’s stated plans, and risk markets are as healthy as ever, I’m looking to get long USD. Looks like a nice entry point here vs. AUD, and sets up nicely if you want to get short the China credit story.

The toppiness of that chart seems a little overdone given how rates have been moving in lockstep, despite the US engaging in a hiking cycle (such as it is, post-QE)

But is the RBA about to throw open the flood gates on HawkTalk 2017?

If they are, no sign of it yet. Safe to say there is virtually nothing priced in to the curve for the rest of the year.

“Underlying inflation” is checking up off the lows as it is in a few different countries, which could be worrisome for an AUD short...

But growth figures have been lousy...

And wage growth has been even worse.  The RBA is going to be in no hurry at all.
So in a boring, low vol market, short AUD looks like a good, low carry way to get some risk-off exposure while potentially setting up for a larger move if the Australian miracle is finally coming to an end and/or some air comes out of the China bubble in the upcoming weeks and months....or if we simply see a USD resurgence on the crazy notion that these guys are actually hiking rates, rather than just talking about it.

Not a strong view here, but a good starting point. Will dig deeper next week.