by Chris Becker Hot money continues to wind out of long oil and into Yen and other safe havens like gold, sending Japanese stocks down while Chinese and Aussie (but I repeat myself) stocks initially rallied. Stock futures for the US and European markets are flat alongside currencies however. 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 The USD and Treasuries rose in lockstep as US stocks retreated due to the retreating oil price overnight as tech stocks took a tumble following their too-fast rise in the previous session. Without much economic news to go on, risk markets are reacting to political and other macro events. A speech
by Chris Becker Outside of Japan it hasn’t been a fun day in Asia with most regional stock markets closing in the red, in opposition to a strong lead overnight on US and European markets. The stronger USD on the back of hawkish Fed comments is only finding resistance against the Aussie as commodities retreat
By Chris Becker The US dollar rallied overnight alongside US tech stocks and European bourses as the risk-on mood re-ignites following some quite hawkish comments from Fed Governor William Dudley. The move higher more than offset losses in energy stocks as the oil price continued to fall as US oil rigs keep pumping, foiling
by Chris Becker Its a bright start to the week with Japanese stocks leading the way across Asia as safe haven buyers retreated away from Yen and filled in to commodity proxies like the Aussie and Kiwi. In mainland China the Shanghai Composite is up over 0.5% going into the close at 3137 points, still
By Chris Becker Another wonderful week on macro markets begins! Last week saw continued domestic imbroglio in the US not able to translate to further volatility, instead relying upon the FOMC meeting to deliver a weak punch with its fourth rate rise to the rising inflation meme, with official CPI slowing. Treasury yields are inexorably
by Chris Becker A mixed end to the week for Asian shares with the Yen falling on the BOJ continued stimulus position, while Aussie and other markets sold off going into the close to end a lacklustre trading session. In mainland China the Shanghai Composite is down going into the close, off approx. 0.2% to
By Chris Becker A double whammy of energy and tech stocks retreating on Wall Street overnight as the USD surged on more hawkish comments from the Fed. Not helping is a widening political scandal in the US that is likely at best to delay the Trump’s administration plan to rollout the infrastructure gravy train,
by Chris Becker The negative lead overnight has turned into a mild selloff across Asia with Australian stocks falling the most after a stonking jobs report sent the Aussie dollar higher. In mainland China the Shanghai Composite is stable going into the close at 3132 points, still clinging above key support at the 3100 point
By Chris Becker As the Fed held to its interest rate rise agenda overnight, even as domestic inflation tapers off and in the face of what looks like a whimpering Trump fiscal plan, US stocks retreated as volatility begins to build. With one more hike left for the calendar year, Treasury traders are scratching
By Chris Becker A more positive session last night with US and European stocks pushing higher as the USD retreated against the majors coming into this weeks FOMC Meeting and tonights CPI print.. UK inflation came in a bit hotter than expected, helping reverse some of the Pound’s recent losses on the May election
by Chris Becker The selloff in tech stocks overnight has not affected Asian bourses as much as expected, with real caution and volatility still surrounding the outcome of the UK election and the shenanigans in the US. In mainland China the Shanghai Composite zoomed straight up after the long lunch break, reversing some of yesterday’s
By Chris Becker US tech stocks may be ringing the bell at the top of the reflation trade with European markets and Pound Sterling continuining their drag down on the UK election fallout. The political fallout in the US maybe finally starting to weigh on shares, as the FOMC decision bears down in only
by Chris Becker The fallout from a hung UK parliament and the Comey testimony has not translated into big falls or higher volatility in Asia – save the Pound, which is taking a pounding against the majors. Good time for shopping online in the UK? In mainland China the Shanghai Composite is up slightly going
by Chris Becker Caution and prepositioning for some major macro events over the next 24 hours in the Asian session today, with the Chinese and Australian trade figures (but I repeat myself) not causing any ripples. In mainland China the Shanghai Composite is up slightly going into the close at 314 points, trying to build
By Chris Becker European stocks retreated while US bourses advanced slightly with a surprise lift in oil supplies in the recent DOE inventory report slugging the crude price and sending energy stocks lower. There’s a huge culmination of macro risk to end the week with the UK general election, the Comey testimony that could
by Chris Becker The less than impressive local GDP result sure impressed Aussie buyers, send the local currency up to its previous high in May while stocks and bonds were non-plussed. Outside the domestic arena, the real focus is macro – the UK election, the Qatar and growing problems in the Middle East, the Twit-in-Chief,
By Chris Becker The US unemployment print on Friday night – nonn farm payroll or NFP – that sets the market agenda for the following month, came in at a three month low, putting some meat on the bones that Trump’s administration is not making America (or the Planet) great again. Inflation remains muted, housing
By Chris Becker As Trump withdraws from the Paris climate accord – and general leadership of the free world – markets overnight went with optimism instead with US stocks closing at new all time highs, the USD rallied and Treasuries fell going into tonights NFP print. Even European markets lifted on the optimism as
by Chris Becker The mixed lead from US and European stocks has not translated into doom and gloom in Asia with most stock markets rising, although today’s Chinese manufacturing PMI saw Chinese stocks and the Aussie dollar take a tumble. In mainland China the Shanghai Composite fell over 0.5% due to the PMI print, finishing