By Chris Becker US stocks are pushing aside all risk off concerns like some bully pushes aside the smallest kid in the playground, making another record high overnight as European bourses retreated. The OPEC meeting outcome was as expected with extended supply cuts, but oil traders didn’t appreciate the news and sold off crude
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 Logic? Rationally thinking? These things don’t go along with stock trading! Chinese financial shares are up sharply, lifting the rest of Asia as the USD retreated while oil gained in anticipation of extended supply cuts at tonights OPEC meeting. In China the Shanghai Composite has closed up nearly 1.5% higher to be
By Chris Becker Only US markets are putting on a show of risk on with European bourses retreating overnight on the Moody’s cut to China. The FOMC minutes showed that the Fed were basically unconcerned with any domestic US economic dramas and are still on track to tighten rates in the calendar year. Yesterday
by Chris Becker Asian markets have absorbed the Moody’s rating cut to China’s debt levels with aplomb with initial downside reaction mainly filled across share markets, with most volatility on commodities as iron ore crashes alongside copper and a weakening gold price. In China the Shanghai Composite recovered from the rating cut after being down
By Chris Becker Risk markets had to absorb the UK terror attack among other macro issues overnight with a return to strength for the USD and mild rallies across both sides of the Atlantic. Markets are poised to see the results of the FOMC minutes plus the upcoming OPEC meeting for cues on interest rates
by Chris Becker Asian markets have moved to safe havens after the Manchester attack and a variety of political distractions in the Americas plus concern over Noble Group. Futures are pulling back while the USD is sold off as traders head for Yen and gold, while oil remains stable after its recent rise, waiting for
By Chris Becker So is risk back on as Trump signs deals with the Saudis, who look set to extend supply cuts to bolster oil prices? Perhaps, with US stocks rallying and Treasury yields rising as political turmoil stays off the US airwaves a little longer. Yesterday in China the Shanghai Composite had a bad
By Chris Becker Another week passes as volatility rises due to the turmoil that is characterising the Trump White House, cascading into deadlocking a Congress that is supposed to be focusing on tax cuts and infrastructure spending which risk markets have already priced in. That upside risk is now reverting as smart money goes to
by Chris Becker The short covering trade continues as Asian stocks follow the positive overnight lead by Japan as investors turn their eyes to a different American impeachment crisis in Brazil. Commodities rose a little as the USD wavered slightly after its bounce back last night. In China the Shanghai Composite is steady going into the
By Chris Becker The economic data finally beat out the political embroglio with better than forecast initial jobless claims and the Philly Fed print helping short sellers re-evaluate the risk off scenario. US stocks rebounded while European bourses continued to selloff with futures suggesting a small uptick on Asian markets on the open this
by Chris Becker Stocks continue to selloff in Asia in response to last night’s big move on Wall Street. While the direction is the same, the magnitude has been muted relatively speaking. Volatility is only just beginning to build however, so stay tuned for more! In China the Shanghai Composite is selling off going into
By Chris Becker And so the wheels turn. Markets are having none of the growing turmoil in Washington, selling off risk big overnight with US stocks falling 2% amid signs that Trump may not last a full year in the White House. Treasuries have rallied strongly alongside gold prices, as the USD is sold off
by Chris Becker Stocks sold off across the region today with increased volatility over the Trump administration turmoil and a lower USD as a result. This has sent risk to safe havens like Yen, dropping Japanese stocks in the process, and government bonds with US and Aussie yields both dropping. Commodities remain mixed with oil
by Chris Becker A generally positive day on risk markets in Asia with most stock markets up as the USD continued to weaken and oil prices continued to climb. Gold rose alongside the other undollar, with other commodities like iron ore and coal also putting in weak but steady gains. In China the Shanghai Composite
by Chris Becker Asia starts the week in a mixed mood with a disappointing Chinese industrial production print overshadowed by rising oil prices as OPEC mulls a longer staged cut in supply. Following the equally mixed Friday night lead, stocks across the region have put in scratch sessions in the main, with the USD weakening against
By Chris Becker Another week passes as volatility remains surprisingly low given that sentiment and commodity prices are dropping hand in hand while the Fed keeps its interest rate rise agenda intact. This week’s economic calendar will include both Chinese and US industrial production prints that could provide confirmation that the global business cycle has
by Chris Becker Asia ends the week with a whimper as stocks across the region outside China fall on a lack of risk taking in response to overnight moves in US markets. Tonight’s advanced retail sales data will either embiggen the risk takers or have them scurrying as the Chimerica make cheap consumer crap/buy cheap
By Chris Becker Poor results from retailers and continuing doubts on the Fed’s rate rise agenda saw US stocks drop slightly overnight as the BOE also warned about consumer spending, sending Pound Sterling down against the majors. Is the global reflation trade finally tipping over? Commodities say no, with oil copper and gold rebounding again
by Chris Becker Another positive day in Asia – just – with most bourses up or putting in scratch sessions following what should have been a good lead from overnight stock markets. The Japanese earnings season started with a bump as Toyota underperformed but the continued selloff in Yen has supported the broader market. The
By Chris Becker US stocks brushed aside the Watergate/Nixonian politico dramas in the US with “good” news on the oil front as DOE inventories declined, sending oil prices higher. This send material stocks higher, while tech stocks kept flying and other industrials lifted as a Fed president hinted that rate rises won’t be hastened
by Chris Becker Outside mainland China, stocks are up across the Asian region with political and macro events once again overshadowing markets. The fallout from Trump’s firing of the FBI director and the sabre rattling from North Korea were distractions as commodities tried to regain from their recent losses while the USD itself remains strong
By Chris Becker While tech stocks in the US advanced to new highs and European bourses dragged along, the broader industrial shares fell due to continued falls in commodity prices even as better than expected corporate earnings were announced. Bets on higher interest rates from the Fed sooner rather than later saw gold and