AUD pairs (and the ES, as a result) are not doing too hot today: the primary reason - Cyclone Yasi, which is now projected to be a category 5 storm according to the Australian Weather Bureau, is making landfall in Queensland and will add to the continent's flooding misery, which has already incurred over $20 billion of damages to eastern states. Yet in a case of supreme irony, the West of the continent, unlike the East which has been having flood after flood, and which is the source of Australia's bread basket and where the bulk of the grains come from, is wrapped in a drought that threatens to impair an already week wheat harvest. From Bloomberg: "At stake is the output of the country’s biggest wheat- growing state at a time when global food shortages have pushed prices to records. The drought has already prompted the government of Western Australian state Premier Colin Barnett to cut its economic growth forecast for the year to June 30 to 4 percent, from 4.5 percent."
Australia’s export earnings from energy and minerals in the three months to Sept. 30 totaled A$44 billion, while the value of wheat exports for the year to June 30, 2011, is forecast to be about A$4.7 billion, according to the Australian Bureau of Agricultural and Resource Economics and Sciences. World food prices rose to a record in December on higher costs for sugar, grain and oilseeds, the United Nations reported on Jan. 4.
“The greatest restraint on Perth and Western Australia is water,” Barnett told reporters in November in Perth, where homeowners are allowed to water their gardens with automated irrigation systems for 20 minutes a week. “We’ve had our driest year ever, so that’s created an acute problem.”
So while Bernanke continues to flood the world with his own form of liquidity (and which is set to double in the next two months courtesy of the SFP program unwind), there is little to no liquidity where it matters. As a result, look for wheat prices to continue surging, making the "price in" component of global revolutions increasingly more problematic.
Below is a realtime map of the incursion of Yasi, courtesy of the Austrlian Bureau of Meteorology
Those seeking a minute by minute coverage of the Cyclone's aftermath can do so at the Austrlian version of the Daily Telegraph.