Wednesday, May 11, 2011

Global Inflation is Real, US inflation is yet unseen

Regardless of the current US inflation rhetoric - it still remains below the China and AUD inflationary data. The key to the current carry trade of low interest rates in the US v Global rates is the key to the USD weakness.
AUD trade

The inflexion point of the USD may be the first real inflationary data print (not the obvious hiking of rates) of the hidden inflationary pressures of the US - once the data points print the inflation numbers, the forex flows may underpin a structural shift in USD strength.

We have seen the small prints of possible traders hitting the eject button, however, the current rebound across the board may limit the downside until the economics actually catches up to the expectations.