Posted by The Q2 Balance of Payments data revealed a surprising decline in foreign holdings of Australia Government Debt.
The transactions data shows net sales of 1517m in Q2 – the first net outflow in sixteen quarters. The prior 15 quarters of inflow sum to ~165bn, so a ~1.5bn outflow is not especially worrying …
The outflow was entirely due to net sales of 2033m of long term Government Bonds (this includes both nominal bonds and linkers). There was an offsetting inflow of 461m into short term paper.
This flows data, and the recent weakness of export prices, weaken two of the best arguments for the recent AUD strength – that it reflected capital account inflows due to the better return on capital and the strong demand for our exports.
The flow was not limited to the CGS market – there was a ~4.1bn outflow on the equity side in Q2 (the outflow over the year was a more modest ~450m).
It seems that the weight of money voted to exit in Q2. This flow may explain the weakness of the AUD in Q2. It will be interesting to see if these outflows are sustained into Q3, and if the AUD weakens in sympathy with them.
ricardian ambivalence 
Thank you – interesting data
the 5302 publication is a gold mine.
I think that the general government securities in 5302 are cgs and semis in total. You don’t get the breakdown into semis/cgsthis until the full financial accounts are released in a few weeks (5232). Not that this weakens your story, just FYI…
You sure? i had thought that semis were in ‘other’
Just checked. The financial accounts for Q1 show that the holdings of national general government bonds were 195bn at the end of Q1 and the Q2 5302 publication shows start of period holdings at 195, 038m …
Therefore i am pretty sure that Semis are not included in general government. They are in ‘Other’.
Hmph. I stand happily corrected. I had just gone off their definition of general government rather than check the numbers (lazy I know). Thanks for that.
Interesting, one to watch. Thanks.
Interesting stuff
So what’s supporting the AUD then?
Direct investment, and the RBA brought 2.8bn
Was the direction of intervention McKibben was recently advocating…
No, the RBA were BUYING
RBA buying?? What for??
I guess even though foreign holders reduced govt debt holdings, it doesn’t necessarily mean they sold AUD. Could be sitting in cash for all we know
I know – I was being flippant!
ahem, sorry :)