Australian Dollar

HSBC: Australian dollar peaking

David Llewellyn-Smith
Tuesday, 14 February 2017
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From HSBC:

The AUD has generally had three distinct and clear drivers:

  1. commodity prices,
  2. China
  3. and carry.

When these three drivers aligned, one-way traffic provides a clear path for the AUD. We saw this clearly in both the bull market and the bear market. When the three Cs aligned in the bull market of 2009-2011, AUD-USD rallied from 0.65 to 1.10. The AUD then drifted sideways until the three Cs aligned in the bear market of 2013-2016, AUD-USD fell from 1.05 to 0.70.The issue now is that these three factors are not aligned. On top of this, the relationship between the AUD and its drivers has changed.

  1. The AUD has failed to keep up with stronger commodity prices.
  2. China’s economic stability does not point us in a clear direction for the AUD, and risks of a US-China trade spat would leave the AUD exposed.
  3. This leaves interest rate differentials as the dominant driver of AUD-USD.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.