An ugly finish to the week here in Asia as share markets tumble in the wake of Trump’s Mexican tariffs and the growing discord in North Korea and the Chinese trade talks. It’s all about safe haven buying including Yen, gold, Bitcoin and Bunds. The Shanghai Composite has closed below the critical 2900 point level in the
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 Stock markets were a little calmer overnight as the US GDP print came in strong as expected, although revised a little lower. The big mover was DOE oil inventories which were much larger than expected, sending crude prices at least 4% lower. The USD remained firm against the majors as the Australian
Asian share markets remain on the backfoot can continue to follow the risk-off mood with falls across the region as the USD remains strong against all the majors, except the Australian dollar which has remained resilient despite a slew of bad economic prints today. The Shanghai Composite has closed 0.3% lower but is still clinging
By Chris Becker Risk sentiment is now in a very poor place with further falls on both sides of the Atlantic overnight, the S&P500 critically falling below the key 2800 point support level as European stocks reacted negatively to the uptick in German unemployment. The USD was stronger against most of the majors, although the
Asian share markets are on the backfoot following the dour return of Wall Street overnight with falls across the region as the USD regains against all the majors, with safe haven buying in Yen the biggest move as the Australian dollar teeters on edge. The Shanghai Composite is the only standout, up slightly to 2914 points,
By Chris Becker Traders in the US didn’t like the long weekend break despite a lift in local consumer confidence with tensions over the ongoing trade dispute with China causing much angst. The USD was all over the place, firmest against European currencies while the Aussie dollar tread water, but commodities like gold, oil and copper
Asian share markets are gaining in confidence despite the lack of a lead from a closed Wall Street overnight with the USD slipping against all the majors, as the PBOC let the Yuan weaken again today. With Wall Street and The City reopening tonight there should be extra volatility and opportunity available! The Shanghai Composite
By Chris Becker With the long weekend at hand in the US and UK markets closed as well, the focus was on the European continent as markets reacted to the EU parliamentary elections. While the Brexit Party got a big hold, the populists and nationalists didn’t fare as feared, helping lift sentiment. Yesterday saw Asian stock
Asian share markets have started the week in a generally upbeat mood, save for the ASX200 which finished with a scratch session due to a bounceback in the Australian dollar. The Trump-ABe meeting hasn’t produced any gaffes while the latest Chinese industrial profits result was a lot lower than expected, it had almost no impact
Finally a better day on Asian share markets with mixed results to finish the week, as risk sentiment remains very cautious. The USD is falling slightly against the major currencies with gold in particular moving higher while the Australian dollar remaining below 69 cents. The Shanghai Composite barely moved and finished at 2853 points, while the
By Chris Becker Risk markets have shown their hand with the “Sell in May” popular crowd working their magic on Wall Street overnight as the US/China trade war heats up over Huawei again. Stock markets fell between 1-2% on both sides of the Atlantic, while oil prices cratered over 5% and currency markets finally found some
Not a happy day on Asian share markets with a sea of red across the board, as risk sentiment remains very cautious with no good news emanating from the US/China trade war. All the major currencies are on the defensive against King Dollar, with the Aussie hovering at its recent lows while Pound Sterling has
By Chris Becker Risk markets are swinging from caution to optimism and back again with US/China trade tensions running high and pulling back any nascent bounce on stocks overnight. The latest Fed minutes had a minor impact on bond yields which fell slightly, while currencies remained relatively calm as the Australian dollar stayed under 69
So far its been a neutral day for risk markets here in Asia as traders weigh up the potential volatility around the ongoing trade war between the US and China while locally a slew of bad economic news has firmed expectations of a rate cut by the RBA as the Australian dollar remains depressed agianst
By Chris Becker US/China trade tensions are subsiding this time, with US stocks lifting overnight alongside bond yields while the USD remained firm, not withstanding a spike due to the latest OECD Economic Outlook. Commodity prices remain relatively calm during this whole mess although gold is sitting on a monthly low. Yesterday saw Asian stock markets bounce
Asian stock markets are generally positive or putting in mild scratch sessions with Japanese stocks ending the day slightly lower after the US seemingly eases up on sanctions against Huawei. Risk sentiment is swinging back to positive while USD remains very firm as the Australian dollar rolls over below its pre-Monday morning gap. The Shanghai
By Chris Becker US/China trade tensions are spiking again, this time on the hullabaloo around Huawei with tech stocks sinking overnight, dragging down industrials and taking away most of any remaining risk confidence. Interest rate and currency markets were more benign but the USD remains firm across all undollars, with the Australian dollar rolling over post
A mixed session to start the week here in Asia, although dead cat’s are bouncing and rolling over here and there, the local market is soaring due to the pro-bank and pro-mining party getting voted in over the weekend. The Australian dollar is also on a tear post the election, although still remains below 70
By Chris Becker On Friday afternoon I suggested we were seeing an alignment of dead cat bounces across risk markets – a clowder if you will – and Friday night saw US markets rollover as the USD spiked higher against almost everything. Overshadowed by the Scomo victory here locally, US/China trade tensions are as high
Dead cat’s are bouncing everywhere as tensions between China and US ramp up again, with The Middle Kingdom complaining about the “little tricks”, sending Chinese stocks down and futures cratering for tonight’s open and close to the week. The upcoming federal election in Australia hasn’t dampened the risk appetite locally, helped along by a much
By Chris Becker Positive sentiment on risk markets is accelerating with some big advances on European markets matched by near 1% lifts across Wall Street overnight. A solid US housing starts figure plus more hawkish Fed speak saw the USD rise against almost everything, with the Australian dollar now down in the 68’s. Yesterday the
The bounceback is getting a bit wobbly here in Asia with confidence not returning in full as expected. Japanese stocks are down while Chinese bourses are treading water, as local stocks are bid as the Australian dollar falls in the wake of a “surprise” lift in unemployment. The Shanghai Composite is floating along here, currently
By Chris Becker Sentiment was mixed overnight with stocks rising, but some disappointing US economic data pushed bond yields and risk currencies lower, Pound Sterling in particular pushed down to a new monthly low. The latest DOE oil inventory report saw a jump in crude prices while Bitcoin remained over $8000USD. Yesterday the Shanghai Composite has bounced
The bounce continues here in Asia with stocks up across the board while currency markets are steady as the USD firms. The trifecta of Chinese internal economic releases came in lower than expected but this was overshadowed by the PBOC cutting the Yuan fix again to its lowest point since January, as the trade war
By Chris Becker Sentiment seemed to improve overnight with a bounceback in risk assets, with Wall Street closing about 1% higher although the USD firmed across the board. Treasury yields lifted slightly, but the chance of the Federal Reserve rate cut by the end of the year rose as well, now a near certainty as
Not the bath of blood that the media (and me!) expected with the continued fallout from the US/China trade war hitting risk markets across Asia, but with some reservation from the bears. The PBOC moved the Yuan sharply lower against USD, the weakest all year while Yen stopped firming against USD. The Shanghai Composite is
By Chris Becker It’s all tumbling down as the Chinese retaliate with tariffs of their own against Trump’s ill-timed tweetery. Wall Street fell around 3% across the board while bond yields fell, with safe havens soaring. Gold has breached $1300USD per ounce for the first time in two months, while Bitcoin is up nearly $1000
With no progress to report on the US/China trade talks and Trump thankfully still asleep (or his staffer’s have taken away his iPhone) there haven’t been any catalysts to upset markets on the open here in Asia today. The Yuan is depreciating sharply due to the PBOC trying to head off the tariffs while Yen
By Chris Becker Risk sentiment is still mixed and despite Trump raising tariffs, the trade negotiations are continuing, leading to a near bifurcation in direction in Asian and non-Asian stock markets. US stocks finished the week on a solid note, while European bourses also advanced as the latest US CPI print came in as expected.