by Chris Becker Stocks in Asia are taking a pause due to new North Korean tensions even after US stocks took out new record highs overnight. The Aussie dollar fell after the RBA maintained its low interest rate dogma to sustain growth – in house prices at least. In mainland China the Shanghai Composite is
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 Another night of record highs on stock markets with US Treasuries falling after Fed Chair Janet Yellen indicated more interest rate rises are on the way. Currency markets were not as USD focused, with Pound Sterling falling on Brexit fears and the Euro weaker due to Spanish political imbrolios. The lack of
by Chris Becker Asia starts the week with strong upswings on stock markets outside China with bonds also strengthening as Friday’s US CPI print is absorbed by risk and non-risk traders alike. Commodities didn’t lose the pace either with gold holding above the $1300USD per ounce level. In mainland China the Shanghai Composite is slumping
By Chris Becker Until Friday night there were next to no economic catalysts in the form of news or releases to get worried about, so risk markets were in “steady as she goes” mode, for the most part. The USD was broadly weaker before pre-empting Friday night’s September CPI print in the US and then snapped
by Chris Becker Asia ends the week with a rally in stock markets outside China while the USD reversed its recent bounceback as Yen and Aussie dollar also lifted. Gold also rose but only slightly as other commodities cooled off. In mainland China the Shanghai Composite is having another pause, up a few points going into
By Chris Becker A pause in US stocks overnight as traders weighed up the latest oil inventory reports and the machinations in Europe regarding Brexit. European stocks put in scratch sessions as the Euro tumbled against USD which is slowly recovering after being under the weather all week against the majors and gold, although the
by Chris Becker Stocks were broadly positive across Asia today taking the good level from US stocks overnight, with the USD weakening against the majors and gold, which is closing back in on the $1300USD per ounce level. The lack of economic and geopolitical catalysts are definitely calming markets this week. In mainland China the
By Chris Becker Last night saw US stocks closing at record highs – again – after the Federal Reserve released a summary from its last meeting, where it signalled an interest rate hike in December is increasingly likely despite low levels of inflation. European markets stabilised following the Catalan issue in Spain while commodity prices recovered.
by Chris Becker Stocks in Asia were generally positive today with a retreating USD helping as well, as turmoil surrounding geopolitical tensions in Korea and Turkey simmered today. A lack of catalyst economic prints is also smoothing the volatility across the region. In mainland China the Shanghai Composite really wants to climb up through resistance at
By Chris Becker European bourses were shaken up overnight as the Catalan independence issue in Spain overspilled into wider Euro concerns, the union currency rallying strongly against the USD as a result. US stocks returned to full strength after Columbus Day, surging to new highs even as the chaotic White House tax reform agenda seems
by Chris Becker Yet another mixed session in Asia today with all markets open after some holiday breaks, most stock markets putting on small gains while the ASX200 flittered away a good start to close flat. The USD is again under pressure with the Yen strengthening slightly and the Aussie dollar surprising with a blip
by Chris Becker A quiet start to the week in Asia as several bourses were closed so it was a mixed reaction to Friday night’s NFP print setting the course for the next month and possibly into the Christmas season. In mainland China the Shanghai Composite reopened after the Golden Week break, gapping up 1% but
by Chris Becker Asia is having a relatively quiet day as traders position for the closely watched NFP print in the US tonight. Most stock markets closed slightly higher, with the ASX rebounding after a poor week of performance, mainly due to an Aussie dollar that has cracked and likely to head to 77 cents
By Chris Becker Boom! Another record high in US stocks overnight as the hawks were let out of the cage, sending the USD higher alongside US bond yields. All the majors, particularly the Aussie dollar, fell against the King as US initial jobless claims and other data pointed to more inflationary pressure for the Fed
by Chris Becker Not the most exciting session here in Asia with currencies and gold unmoved against USD as most stock markets putting in scratch sessions as Chinese bourses remain closed for a holiday. The only action was in the Australian dollar which fell on a poor retail sales number as traders pre-position for tomorrow
By Chris Becker US stocks crept higher while European bourses tread water as the USD retreated against the undollar assets like gold, Aussie dollar and the Euro. The US ISM non manufacturing print came in higher than expected while Eurozone retail numbers disappointed on the downside. A higher than expected crude inventory level saw oil
by Chris Becker Asia shares were quite mixed today with the ASX200 taking a big hit while Hong Kong stocks continued their rally. Aussie 10 year bonds rallied alongside the dollar while commodities retreated. The BTFD crowd continues to pile in on US stocks even with concern over the viability of Trump’s fiscal disaster in
By Chris Becker Another night of new record highs for US stocks as the USD retreated slightly against the majors as traders position for later week events like the NFP payrolls on Friday. Commodities were relatively stable with crude oil prices holding on after a swift fall to start the month and quarter. Recapping Asia
by Chris Becker Outside the ASX200, most stock markets gained across Asia, following the good mood on Wall Street overnight. It was a day of reserve banks moving and standing still with the Chinese authorities cutting reserve requirement ratios for some loans while the RBA sat on its hands, sending the Aussie dollar lower. In
By Chris Becker Volatility returned while I had a little but welcomed break (but I could do without the Bali Belly, even though I never left the country!) but it was mainly upside as overseas stocks continued their rallies after breaking out on a return to USD strength. This continued overnight with rallies in the
By Chris Becker The risk on rally seems to be running out of steam with US stocks retreating overnight even as oil prices rise and the USD weakened, as Chinese internal economic data yesterday failed to heighten the risk on mood. The Bank of England held fire, but indicated it may start tapering its
by Chris Becker Stall speed for risk assets going into a busy economic calendar tonight with the BOE meeting after locally absorbing an important trifecta of Chinese internal measures which disappointed a little on the downside. The Australian employment print was a highlight, but as always taken with a grain of salt (around 0.2% grain!)
By Chris Becker Rolling rolling rolling – keep those record highs rolling! But only just as US stocks eked out a nominal new high with the USD strengthened and Treasuries pulling back, as the risk rally looks like running out of steam a little too quickly. In the commodity space, oil jumped on higher