by Chris Becker Asian markets remain very cautious, unable to translate new record highs on US stock markets to further advances domestically. Currencies are little changed with the USD remaining steady against most majors after last nights falls while commodities are mixed as iron ore falls and oil wants to lift higher after being steady
Australian Dollar Analysis, News and Forecasts
The Australian dollar, Aussie dollar (AUD) is one the world’s great commodity currencies. Founded in 1966 and floated in 1983 the Aussie “battler” is the 5th most traded currency in the world despite the economy being only the 12th largest by GDP.
The Australian dollar spent much of its first two decades post-float consistently devaluing from the pre-float value of $1.48 US dollars in 1974 to a low of 47 cent in 2001.
Subsequently it broke this huge downtrend with the rise of the Chinese economy and it’s insatiable demand for raw materials – especially those inputs into steel production, iron ore and coking coal – which Australian was endowed with in abundance. It topped this enormous turnaround in 2011 at $1.11 versus the US dollar.
As the super cycle entered decline so too did the Aussie, falling to a low of 68 cents in 2016 and still falling.
However, the Australian dollar had became popular as a small reserve currency holding with foreign central banks. As the value of the currency virtually halved during the bust they kept buying. Because global central banks were fighting both low inflation and oversupply worldwide, many engaged in an overt currency war, deliberately devaluing their currencies to capture or protect global market share of production. This was exacerbated by private sector flows pursuing the “chase for yield”.
This proved a challenge to Australian macroeconomic managers as the commodity bust persisted. Without the lower value, the Australian economy was unable to compete in non-resource sectors. The Reserve Bank of Australia embarked on a series of interest rate cuts, jawboning and, eventually macropudential policy, to bring the Australian dollar to fair value.
There are five drivers to the currency. Australia’s relative position vis-a-vis Chinese and its own growth; interest rate differentials, the strength or otherwise of the US dollar; the terms of trade and sentiment. Each of these tips into any fair value model but over time the primary driver is the terms of trade. The relative strength of each waxes and wanes with wider trends. For instance, during the “tech bubble” of the late nineties the Australian dollar was battered lower by poor sentiment as it was seen as a pre-tech dinosaur. After the “tech bust”, the currency rapidly recovered as sentiment turned favourable for real assets like commodities.
MacroBusiness covers all apposite data and wider analysis of these issues daily.
By Chris Becker While US stocks technically hit another record high, this should be measured in hairs, not leaps and bounds as European stocks retreated amid slowing momentum across risk markets. The USD was hit hard against the majors with all moving higher against “the King”. Oil is breaking out finally after a lower
by Chris Becker Asian stocks are not having a good day in response to the mixed overnight lead absorbing the FOMC minutes fallout. Aussie 10 year yields were firmly bid higher as was the Aussie dollar itself in response to the capex print, while metals and other commodities slid back. The Shanghai Composite is losing ground
By Chris Becker The release of the latest FOMC minutes has been construed as dovish, with the Fed seemingly unconcerned about near term inflation. This sent the USD and stocks lower as Treasuries were bid with hot money instead. This sent Euro higher which did provide much of a headwind to European stocks, while oil
by Chris Becker A great lead from overnight markets generally turned the risk taps on here in Asia today, but the Yen strengthened against USD providing a headwind for Japanese stocks. Commodities were generally higher with the WTI oil price again dicing with the $54USD per barrel level as we head into another week of
By Chris Becker The return of US traders to their desk heralded another new rally to US stocks with record highs again dominating. The USD returned to strength against most of the majors, with oil almost breaking out to a new high, as retail earnings and preliminary PMI data firm the Federal Reserves resolve to
by Chris Becker A strengthening USD is the main highlight during a muted session in Asia today, with the release of the RBA minutes locally the only major catalyst on the calendar. Commodities were generally higher with iron ore up nearly 4%, gold slipping slightly while oil still wants to break free as the WTI
From the ANZ: ANZ continue to think that the AUD is going to depreciate in line with a stronger USD over the forecast horizon, the scale of the depreciation in our forecasts looks too large. In brief: Significant AUD downside has started to look more like a tail risk than a central forecast. Commodity prices
According to Goldman the US does: 1. Since the US election, inflation in the major advanced economies has been repriced to the upside at the front end and long end of inflation curves, which are now relatively flat. Even though inflation break-evens have traded in a tight range since the beginning of the year, we
From Deutsche: With a surge in exports driving a sharp narrowing in the Australian current account deficit, there could well be further upside to the AUD. Typically, using the current account deficit to form a view on the AUD is problematic. This is because the current account deficit typically increases when the domestic economy is
By Chris Becker The BTFD rally had a pause overnight as US markets were closed for the President’s day holiday and the economic calendar was relatively empty providing no catalysts. The focus was solely on Europe particularly with the failed Heinz takeover bid on Unilever which dragged stocks while bonds were largely unchanged. Looking at
by Chris Becker Asian stocks have had a mixed start to the week following a similar positive, but mixed lead from overnight markets on Friday. The Yen weakened helping domestic Japanese shares while Chinese bourses are the most positive moving on nothing as usual! The Shanghai Composite is up over 1% after the lunch break to
By Chris Becker Another interesting week in macro markets . As usual for Monday mornings, I’ll take a step back and look at markets with a longer term view as my “Trading Week”. The Shanghai Composite had broken out to a new weekly high and was on track to hit its previous high at 3300 points before
by Chris Becker Asian stocks sold off today to finish the week unsettled. There’s still no news on Trumps new tax plan and confidence is waning in general at his administration’s inability to push anything but stock markets higher. The Shanghai Composite is down a little over 0.5% after the lunch break to be at 3212
By Chris Becker The rally isn’t over but it has to have a breather from time to time and that’s what happened overnight with US stocks falling slightly alongside their European cousins, while Treasuries advanced and gold remain elevated. In data, housing starts and initial jobless claims both came in lower than expected but this
By Chris Becker The bulls are Charlie Sheen winning here as January inflation data from the US is embiggening traders that the Fed will continue on its rate rise agenda – a March lift now above 40% probability – sending US stocks to new record highs again overnight. Treasuries are at a juncture with yields
by Chris Becker Press that buy button as hard as you can is the clear signal out there as risk takers continue to gobble up stocks across the Asian region, dumping bonds along the way. This has been in response to another overnight record high in US stocks, plus the Chinese credit data surprising on
By Chris Becker The data calendar helped move things along last night building on the surprising Chinese CPI in the Asian session. GDP data in Europe undershot slightly and with a poor showing in the closely watched German ZEW business survey, the Euro and stocks fell lacking confidence in risk taking. All guns blazing though in
by Chris Becker The sudden resignation of US National Security Advisor Michael Flynn has pushed the USD down, combined with the higher than expected Chinese CPI print with Asian markets slipping as confidence faltered over the dual macro impact. Locally the surprisingly good NAB business conditions survey combined with the lower USD sent the Aussie
From HSBC: The AUD has generally had three distinct and clear drivers: commodity prices, China 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,
by Chris Becker Asian markets absorbed the weekend like it never happened, extending Friday’s risk rally with green across the board in stocks as Yen pulled back, iron ore exploded higher, dragging other commodities with it. Bonds were sold off mildly while the Aussie dollar remained firm against the USD as the commodity proxy. The Shanghai
By Chris Becker Another interesting week in macro markets as the bulls finally emerge in US stocks taking them to new record highs as the Trump administration soothed Asian and Pacific markets with a bit more diplomacy and a lot less Tweeting. Safe haven assets took a fall on Friday, culminating in a blowout in
From Goldman: Markets are worrying over the “true” intentions of the new administration. Concern that President Trump is mercantilist and may talk down the Dollar has seen the Dollar fall notably below the 2-year rate differential, as markets have priced a protectionist risk premium. Our last FX Views argued that this decoupling is unlikely to