by Chris Becker While North Queensland batters down as Cyclone Debbie crosses the coast, the rest of Asia is feeling much more pacific after a shaky start to the week yesterday. The Shanghai Composite is down 0.3% after the long lunch break still at 3255 points, still unable to climb significantly above local support at the 3200 level.
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 remain unsettled as we start another week amid the chaotic mess that is the Trump administration with US stocks largely unchanged while European bourses retreated on the pricing in of the upcoming Brexit trigger. Commodities remain volatile especially copper and oil while iron ore heads south, all posing headwinds for
by Chris Becker Asia starts the week in a bad mood following the frustrating inaction in Washington on Friday. The fall in US stocks translated into falls across the region, save China, with S&P futures dropping alongside the USD as the Yen powered ahead providing a big headwind for domestic Japanese stocks. The Shanghai Composite is putting
By Chris Becker The major problem facing macro markets is a neophyte US president unable to turn his sales pitch into actual policy with a big fail in Congress trying to “reform” healthcare late last week. This lack of confidence is upsetting market watchers, who have hinged their bullish hopes on “huuge” spending in infrastructure
by Chris Becker Asia remains cautious in the face of seemingly intractable domestic policy development in the US, although Yen sold off providing a tailwind for Japanese stocks, Chinese bourses are under pressure from monetary policy tightening internally. Crude oil and other commodity prices remained depressed with the Australian dollar still weakening against the USD.
by Chris Becker Is the dip already over? Most stock markets in Asia put in positive or scratch sessions taking the shaky but still positive lead from US stocks overnight. Currencies were effectively unchanged with a small rally in USD against Yen offset by a lower Aussie and Kiwi dollar as commodities pulled back slightly.
By Chris Becker The dip in stocks may well be over before it starts with US stocks recovering last night, while Euro bourses slipped on the London attacks but currency markets were non-plussed. Treasuries remained strong with 10 year yields slipping below 2.4% with further advances in European yields on the safe haven trade.
by Chris Becker Markets in Asia are getting squished as a result of the “shock” fall in US stocks overnight. Red across the board while the flight to safety sees bonds bid up high with Treasuries down to nearly 2.4% and Aussie issues off four points to 2.77% as the Aussie dollar moderates its falls from last
By Chris Becker The risk trade faced a triple whammy overnight with the Trump chaos, a Fed hellbent on raising rates and the North Koreans doing their normal bat-shit crazy distractionary brinkmanship. This led to a big selloff in US stocks as the USD was also abandoned by all and sundry. Todays session in
by Chris Becker Stocks in Asia are mixed while emerging markets are enjoying a rally due to the declining USD. Commodity markets are equally volatile with Dalian off but not engaging the usual correlation with Australian mining stocks as both oil and gold prices fall off before the London open. The Shanghai Composite is just floating
By Chris Becker The risk trade is transitioning back to the safety of bonds as the USD softened overnight on comments from Fed members that the tightening regime will probably include at least 2 or 3 hikes this calendar year. US stocks retreated, while gold and other undollar currencies were stable or rose slightly
by Chris Becker Markets in Asia are mixed to say the least with Chinese bourses surging and the rest struggling as Yen and Aussie dollar lift higher against a floundering USD. Australian 10 year bond yields are falling again while the oil price slipped in weak Asian trade. The Shanghai Composite was up before the long lunch
By Chris Becker The Dutch election pushed up Euro stocks overnight, but US bourses retreated or put in scratch sessions taking pause after the post-Fed meeting bounce. Undollar assets moved higher against USD while oil slipped again as gold moved higher above $1200USD per ounce. Looking at Asia’s session yesterday, the Shanghai Composite closed nearly
by Chris Becker Markets in Asia reacted positively to last nights lead following the Fed’s interest rate rise as the conga line of tightening fiscal policy continues with the Chinese central bank raising rates today, the BOJ holding fire and the BOE meeting later tonight. Oil and gold rose as did the other undollars with
By Chris Becker Well there it is. The Federal Reserve raised rates and the world didn’t end. In fact, the USD slumped on relief that the Fed won’t be accelerating its rate rise agenda, Treasuries rallied and got out of the “critical” dangerzone above 2.6% yield, gold launched, stocks went up. What’s not to
by Chris Becker Markets in Asia are maintaining the wait and see approach as a big night of events in Europe and the US, led by the FOMC meeting where the Fed is expected to hike rates. Bond markets remain even quieter as expectations of increased volatility post the Fed meeting are rising. The Shanghai Composite
From Goldman: 1. Shifting tone at the ECB. The market’s interpretation of the March ECB meeting was hawkish. As we have flagged, investors gave more weight to the upside growth and inflation forecast revisions and to President Draghi’s comments on changes to the Statement than to his remarks reasserting the Governing Council’s commitment to the
By Chris Becker Oil falls and drags stocks with it overnight as traders around the world await the FOMC meeting where the Fed is expected to hike. Pound Sterling took a fall amid the other currencies as tensions in European politics heatup with the Dutch election and the probable Scottish referendum. Treasury yields retreated
by Chris Becker Asia markets remain in caution mode going into this weeks Fed meeting with no real movement to report on stocks, as currencies continue to weaken in the face of a stronger USD. It will be a Euro focus this evening with news of a possible Scottish referendum and further complications with Brexit
By Chris Becker Its all about Treasury yields at the moment in anticipation of the Fed’s FOMC meeting this week as stocks were left unchanged overnight in cautious trading. The so-called critical 2.6% yield level was breached last night on 10 year Treasuries, as global stocks remain extremely high post the Trump inauguration. Looking
by Chris Becker Shares in Asia have reacted positively to Friday night’s NFP print, absorbing the weekend news with aplomb, as the USD retreated against most of the majors across the region. Commodity prices remain under pressure with WTI oil heading to the $48USD per barrel level and gold barely maintaining above support at $1200USD
By Chris Becker Friday night saw the release of February’s non-farm payrolls from the US, with estimates of a staid month beaten on the upside with a strong print, sending the USD down against Euro and bond yields soaring higher. This week USD bulls await the March meeting of the US Federal Reserve that should see
by Chris Becker Another interesting session in Asia to finish the week locally as the South Korean president is ousted, bonds are selling off strongly and the USD remains king of the currencies. With 10 year Treasuries now above the “critical” 2.6% yield level, tonights US unemployment print could the most important one of the