Unusually for Australian dollar trade, it is down sharply in Asia today as CNH falls:
The yuan has been remarkably resilient as Chinese prospects have dimmed. It has been some whacko tail-end blowoff of the Fed’s free money flows. It’s not going to last as the PBoC shifts to RRR and rate cuts in due course.
Morgan Stanley still sees a FEd taper and DXY benefitting:
Corporate pension fund rebalancing might be keeping a lid on equities and rates, but not the US dollar. We see the FOMC meeting boosting the US dollar most easily, but we also suggest investors maintain a Treasury market duration underweight.
Don’t getM.A.D.–get bullish USD, bearish UST.
Interest Rate Strategy We maintain outright short 10y USTs and EDZ2Z4 steepeners, and see a triple inflection supporting higher nominal and real yields.
This is the fixation of Fed-addled Wall Street as China falls apart, which is why duration is selling despite ructions around Evergrande.
If the Fed tapers into the Chinese property bust then the whole world is going to fall apart and, ironically, MS will be right about a rising DXY as everything else plunges.
Including long-end yields!
