Australian Dollar

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.

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Macro Afternoon

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

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Macro Morning

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

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Macro Afternoon

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

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Macro Afternoon

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

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Macro Afternoon

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

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Macro Morning

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

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Macro Afternoon

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

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Macro Afternoon

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

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Macro Afternoon

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

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Macro Afternoon

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

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Macro Afternoon

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

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Macro Afternoon

by Chris Becker So as Trump spits the dummy, stocks boomed across Asia, mainly due to increase Chinese exports, but also the growing sense of a free for all on Wall Street. This is leading to a lot more risk taking as bonds are dumped left, right and centre and stocks are bid again after

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Goldman: Stay long USD

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