With the steep falls on Wall Street overnight in reaction to a not-dovish-enough Fed, Asian markets have suffered a similar fate with Japanese stocks bearing the brunt of the carnage as the BOJ meeting also passes without any easing measures. The Shanghai Composite is probably the best performer, only down 0.4% or more to 2538 points
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 It was all about the Fed last night and oh boy did markets react to that tiny rate rise, with US stocks falling off the proverbial confidence cliff as USD soared against everything including gold. Treasuries were near motionless however. The calendar is packed today with Australian unemployment and the BOJ interest
A sea of red across Asian bourses, but it’s a shallow sea with only minor losses outside China as traders await tonight’s FOMC meeting. Curreny markets were very quiet obviously, while gold crossed above $1250USD per ounce. The Shanghai Composite closed down 1% or more to 2549 points in a steep selloff as previous support level at
By Chris Becker A modest rebound overnight on Wall Street turned into a scratch session as oil prices stumbled, with the USD and Treasury yields still falling as markets grapple a near certain rate rise by the Federal Reserve tonight amid continued chaos in the White House. Recapping Asia’s session yesterday where the Shanghai Composite closing over
A very dour mood across in Asia in response to the overnight slump on Wall Street, although the mangnitude wasn’t the same, the intent of taking risk off the table before the FOMC meeting is paralleled here. The Aussie dollar finally found some life but it’s playing catchup as USD is sold off across the
By Chris Becker Caution has been downgraded to uncertainty with stock markets selling off sharply overnight after what looked like a good bounce here in Asia yesterday. US stocks fell over 2% with US 10 year Treasury yields now well below the 2.9% level, dragging the USD lower against all the majors except Aussie. Recapping Asia’s
A relatively upbeat start to the week here in Asia following what was a dour finish on Friday night on Wall Street. In China markets however are flat but elsewhere, weaker domestic currencies are supporting an eager start with the ASX200 the standout. The Shanghai Composite is barely up after the lunch break, hanging on 2595 points
By Chris Becker Looking at Chinese stocks first, where last week saw the Shanghai Composite again fail to stabilise above tentative support at the 2600 point level, as economic news disappointed. The continued trade war and lack of confidence in getting any traction with a near powerless Trump as not given any added spark to this depressed
Not a positive way to finish the week here in Asia with a broad selloff due to the slowdown in Chinese economic data, with the Aussie and Kiwi falling alongside all the Yen crosses. As markets position for next week’s FOMC meeting, where expectations are for another rate rise, it’s caution across the board due
By Chris Becker Caution reigned on risk markets overnight with the ECB meeting taking a dovish turn while currencies were largely unchanged alongside the other barometer, US Treasury yields although the 10 year remains under the previous “magical” 3% level. Commodity prices fell slightly, with the Aussie dollar also slipping alongside Kiwi. Recapping Asia’s session
An very positive day for risk assets here in Asia as the USD continued its retreat against the majors except Yen, helping domestic Japanese stocks while Chinese bourses finally played catchup and have lifted significantly, especially on the mainland. The potential news of the Chinese buying soybeans from the US has overshadowed the growing political
By Chris Becker The nascent recovery on risk markets continued overnight with US stocks rebounded strongly before fading going into the close on the back of a possible resolution or at least fading of problems in trade with China and the USA. The Brexit saga saw more volatility in Pound Sterling, this time to the
An even better return to risk here in Asia today with most stock markets lifting, while the USD remained quite strong against the major currencies, the Kiwi and Aussie in particular retreating. The Shanghai Composite is up a handful of points going into the close, currently at 2596, still hanging on but unable to get back above the
By Chris Becker Volatility was the name of the game overnight on risk markets with European bourses rebounding while US markets exchanged gains for losses although the broader S&P500 finished with a scratch session. I think all traders are ready for a Christmas break because the culmination of Trump’s trade war, Brexit and other geopolitical
A mixed result following the very late rally on Wall Street overnight with Japanese stocks retreating while the rest of Asia had minor gains, showing a distinct lack of confidence across the region. The Shanghai Composite is up only a few points going into the close, or 0.1% to 2586 points, hanging on but still unable to get
By Chris Becker After a solid session of selling in Asia yesterday, European stock markets lost all their confidence later in the session as PM Theresa May lost her bolt on the Brexit vote, sending Pound Sterling down to a new low for the year. US stocks surprisingly came back strongly in the second half
It’s been a relatively good finish to the trading week here in Asia despite epic overseas volatility with stock markets putting scratch sessions or slightly higher closes. The currency and bond markets are poised for tonight’s US unemployment print, the result of which hinges on the Fed’s next interest rate move. The Shanghai Composite has escaped
By Chris Becker US markets reopened and immediately went into sell mode overnight, down nearly 3% in mid-session before a late rally saw prices recover to a scratch session. European stocks were not so lucky, with big falls across the board as the trade war continues, Trump still distracted by the Mueller investigation to effect
It’s been a straight risk-off session here in Asia as the Huawei headlines are fracturing the possibility of a trade deal between the US and China, fueling safe haven bids and dumping of stocks. US Treasury yields continue to fall while commodity currencies their downward trajectory as markets expect a dour night on Wall Street
By Chris Becker Risk markets were helped overnight due to the US holiday although European bourses caught up to the previous Wall Street carnage, like in Asia yetserday the falls weren’t as strong. Currency markets retreated in volatility although the Aussie and Kiwi fell slightly, the Euro was largely unchanged while gold put in another high. Recapping Asia’s
The carnage from Wall Street overnight has not been exactly translated into the same falls here in Asia, but it’s certainly sent volatility higher as the fallout from the US/China “trade deal that’s not a deal”. The Shanghai Composite is down 0.5% to 2651 points, still remaining above the previous support level at 2600 points, digesting the volatility
By Chris Becker Big falls overnight as risk sentiment reversed and then slumped as it became apparent that The Great Deal Maker was full of hot air over the US/Chinese trade war truce. US stocks were drowned in a bath of blood, down nearly 4%, with the US 10 year Treasury yield also down considerably
The positive mood from the weekend’s G20 meeting has turned sour as the Trump trade “deal” between China and the US has fizzled into empty promises with both sides dialing back expectations. No surprises there. Stocks have retreated with the US Treasury yield curve inverting once more while the US fell against Yen and the other majors.
By Chris Becker The positive outcome from the weekend G20 summit continued overnight after making stocks and risk currencies gap on Monday morning. US Treasury yields fell below 3%, with interest rate futures still indicating an 80% chance of another Fed hike in December, with added confirmation as the latest ISM manufacturing print surprising to the
The weekend’s G20 meeting with the trade war truce between China and American has seen some big gaps up in risk assets, with Chinese stocks in particular rallying hard. The Australian dollar has been a big benefeciary, gapping up against all the majors and crosses, as has the Kiwi with the Yuan weakening considerably. The Shanghai
By Chris Becker Looking at Chinese stocks first, where last week saw the Shanghai Composite again fail to stabilise above tentative support at the 2600 point level, but at least there hasn’t been any new lows. The weekend news of a potential truce in the trade war between America may give some added spark to this depressed
Outside Australia it’s been a good finish to the week on stock markets across Asia as aniticpition builds for the Trump-Xi meeting at the G20 conference this weekend. The Chinese manufacturing PMI came in bang on no expansion, which may have been behind some of the lack of confidence on Australian markets. The Shanghai Composite is up
A fairly muted response to the big surge on Wall Street overnight here in Asia today, with modest gains outside of China, while the Middle Kingdom share markets suffered a small setback. The USD continued its selloff however, especially against Yen and Kiwi, while the Aussie dollar remains above 73 cents. The Shanghai Composite is down 0.3% to 2594 points
By Chris Becker The Fed has spiked the punch bowl with Chairman Powell seeming to backtrack the faster pace of normalisation of interest rates in a speech overnight. Treasury yields and the USD dropped in response and set a fire under equities with US markets closing nearly 2% higher across the board. The 3Q GDP
Outside Australia, it’s been a good day for stock markets across the region with currency markets relatively quiet leading up to an important speech by Fed Chair Powell tonight, which is likely to involve some twitter dribbling in response from Trump. The Shanghai Composite is up 0.7% to 2592 points going into the close, perhaps finally making some