The Q2 Balance of Payments data revealed a surprising decline in foreign holdings of Australia Government Debt.
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.