by Chris Becker Definitely risk off here in Asia today to finish the week on a low as stocks follow the poor overnight lead coming from the Spanish terrorist attack and the derailed Trump administration. Safe havens are the destination for hot money with gold, Yen and bonds rising. In mainland China the Shanghai Composite
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 Markets ran for safe havens overnight in the wake of an awful terrorist attack in Spain and the realisation that yes, the US president is nuts and he’s not going anywhere or will get anything substantive done by a now impotent Republican Congress. And this is before Mueller’s investigation really gets
by Chris Becker A very mixed day in Asia after what looked like a good lead overnight from risk markets, with response to the dovish Fed minutes muted by resumed Korean tensions and a burgeoning Yen. Stocks were down across most of the region. Commodities were the highlight with oil rebounded a little, while industrial
By Chris Becker Coo coo catchoo. The Fed goes somewhat dovish in its latest meeting minutes, complaining about low inflation, sending the USD down sharply from its recent little high and supporting stock markets on both sides of the Atlantic. An upside surprise to the EZ GDP print helped as well. Commodities were mixed
by Chris Becker Following last night’s tepid lead from overnight markets Asian traders are looking at each other and wondering if they should continue on with the bounce from Monday, given the seemingly reduced risk over the Korean peninsula. Stock markets were mixed with only the ASX200 putting on meaningful gains with currencies relatively stable
By Chris Becker The USD led the charge overnight as advanced retail sales surprised to the upside, sending bond yields higher on even firmer expectations of another rate hike from the Federal Reserve before the year is out. Stocks were relatively flat in the US as a result, while European bourses advanced on good
by Chris Becker The bounce continues across Asia with green across the board for stock markets as the USD rallies on the back of renewed vigor for interest rate rises. The Korean situation has eased in terms of tension, giving markets respite as they follow the great start to the week from transatlantic markets overnight.
By Chris Becker Volatility deflates overnight as worries over Korea abated, sending stocks higher as safe havens like Yen and gold were dumped. Meanwhile, the USD returned to strength which emboldened European stocks that have been under the weight of the Euro, while oil dropped. Yesterday in mainland China the Shanghai Composite came back
by Chris Becker Its bounceback day here in Asia as no news about North Korea is good news, with Friday’s night slight return to risk helped today with positive Chinese economic prints. Although the industrial production number disappointing, the mood has been positive, with Yen also weakening slightly alongside gold as Aussie dollar came back
By Chris Becker Volatility returns with a vengeance as tensions on the Korean peninsula spillover to risk markets, even when the economic and stock fundamentals seem sound. The problem with too low volatility is it begets a higher burst when it breaks and that’s where correlated stock markets find themselves presently. As usual for Monday
by Chris Becker Another sea of red across Asian stock markets today as tensions overflow between Pyongyang and Mar-a-lago. The massive lift in volatility on US stocks overnight translated into falls everywhere, particularly local markets which broke significant support. A mixed mood on USD though, with the Yen finding buyers on the safe haven while commodity
By Chris Becker Well there it is – volatility spiked tremendously overnight with US and European stock markets losing nearly 2% as risk ran to safe havens like gold, Yen and bonds. Yesterday in mainland China the Shanghai Composite closed down nearly half a percent recovering a sharp selloff just before lunch to be
by Chris Becker Another day of unease across Asia with the Korean troubles still affecting risk markets, with the Yen bid higher, the Korean Won sold off and stocks retreating across the board. In mainland China the Shanghai Composite is off nearly half a percent recovering a sharp selloff just before lunch to be at 3261
By Chris Becker Another night of volatility as two five year olds exchanged barbs over nuclear weapons, although this didn’t upset markets as much as some feared. European stocks sold off more sharply while US stocks slipped as currency markets remained calm while bond yields fell across the board on safe haven buying. The OPEC
by Chris Becker The Korean troubles are turning the risk mood straight off in Asia with the Yen appreciating against everything on the safe haven bid. Stocks are down across the region, save Australia, while bonds were bid alongside gold. In mainland China the Shanghai Composite has closed down 10 points or 0.3% lower to 3271 points
By Chris Becker US stocks retreated overnight as volatility ramped up on the North Korean situation. Bonds were sold off as oil remained subdued awaiting the end of the two-day long OPEC meeting while the USD asserted itself against the majors. Yesterday in mainland China the Shanghai Composite has closed up only 2 points higher to
by Chris Becker A mixed day here in Asia as the overnight positive lead from the US did not translate to new highs with mixed reactions to China’s trade balance figures. Oil slipped while gold rose as bonds were relatively unchanged, alongside currencies. In mainland China the Shanghai Composite has closed up only 2 points higher to
By Chris Becker US stocks advanced, but European bourses were subdued as German industrial production for June printed unexpectedly lower. Oil traders are awaiting the outcome of the OPEC meeting while other commodities rallied to start the week strongly. Yesterday in mainland China the Shanghai Composite closed up nearly 0.5% higher to 3277 points as
By Chris Becker Another week of low volatility passes by, culminating with the monthly big billboard economic print on Friday night, the US non farm payrolls, which will set the agenda for the next month. Its likely to be more of the same, exarcebated by a two-week vacation by the Twit-in-Chief, which reduce volatility around
by Chris Becker A whimpering end to an interesting week in Asian stock markets with Japanese and Australian bourses falling while Chinese stocks maintained scratch sessions. Bond markets received the hot money today on safe haven buying, as did Yen as risk gets ready for the big one tonight – the NFP print in the
By Chris Becker US stocks fell overnight on the widening political imbroglio in the US with a race to bonds sending Treasury yields to a new low while other safe havens also benefited. European stocks had been doing well before the US open and while there was some disappointing economic prints, with the non-ISM
by Chris Becker Stocks fell across the region today on a variety of local and international news, starting in South Korea but also extending into China due to a mounting trade war with the US. The weakening USD is not helping in Japan with the Yen elevated, while Pound watchers are waiting for the BOE