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.

12

Goldman has turned uber-bullish Australia

From Tim Toohey at Goldman: Looking through some negative news flow… Following on from the material contraction in GDP reported for the September quarter, Monday’s mid-year economic and fiscal outlook incorporated news of a further deterioration in Australia’s public finances. Against this negative backdrop, it is not surprising that surveyed sentiment has been under some

0

Monthly inflation weak, jobs ads better

Melbourne Institute monthly inflation is out and is still weak at 0.1% month on month and 1.5% year on year: Trimmed mean is weaker, up 0.2% MoM and 1.1% YoY. Meanwhile, ANZ job ads are out too, up 1.7% month on month: 31/12/2015 -0.3 0.3 10.5 31/01/2016 0.9 0.5 10.3 29/02/2016 -1.2 -0.2 10.2 30/03/2016

22

MS: Sell AUD with both hands

From Morgan Stanley: For a trade into year-end we suggest selling AUDNZD driven by terms of trade differentials. In general, when analyzing commodity currencies it’s hard to stay away from monitoring data from China. Yesterday we learned that the Chinese authorities were going to restrict mortgage lending further by raising deposit requirements.  With the aim

5

Deutsche: Sell Australian dollars hard

The Aussie is fighting manfully against the USD rocket as commodities hold up on the Chinese futures bubble and it is downright powerful on the developed economy crosses: But Deutsche has some very good advice: A fortnight after the US election, we expect continuing weakness in the dollar bloc. While we would sell the entire bloc

0

Euro the new bear’s picnic

From the AFR: “For FX markets, politics is the new economics,” said David Bloom, global head of FX research at HSBC. “Quantitative easing has stifled the bond market, distorted equity markets and narrowed yield differentials. This means FX is uniquely placed to reflect political developments.” With major central banks continuing to buy up bonds, regardless of the

24

Macquarie slashes Aussie growth forecast

Fascinating from Macquarie:  We have updated our economic, currency and interest rate outlook for Australia following the US election  as part of our November Global Macro Outlook. Outlook  GDP outlook: We have downgraded our Australia GDP outlook in concert with our US economists; downgrade to the US growth trajectory. The key impact channel

2

How high is the US dollar going to go?

From BNPParibas: The dollar has performed well in October, moving rapidly towards our bullish USD year-end targets of EURUSD 1.08, USDJPY 108 and USDCAD 1.35. We remain constructive on the dollar heading into an expected December rate hike. However, we believe the USD has gained ground too quickly and is now vulnerable to a retreat.

5

Aussie dollar headed for 90 cents?

From the AFR: The Australian dollar is likely to hit US85¢ within five years and could trade as high as US90¢ because interest rates in the United States aren’t going to rise as much as expected, according to one of the world’s bigger private equity funds. The director of research for the Carlyle Group, economist Jason Thomas, who was