The lack of progress in both the Brexit no-deal and the US China trade talks continues to weigh on risk markets with overnight losses festering into the Asian session today as some Chinese markets return from holiday. In currency land most undollar assets are unchanged but the Aussie dollar is failing against the crosses, notably
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 Risk markets are selling off going into the end of the week with a lack of progress on the US China trade talks to blame while the European Commission downgraded their latest growth forecasts. A run to safe havens was the result overnight with US Treasuries rallying while European currencies stabilised after
By Chris Becker Equity markets were subdued overnight with both sides of the Atlantic registering minor losses as traders take a pause amid a much stronger USD surge. Treasuries were bid slightly while the Australian dollar continued to fall on the change in the RBA’s bias from yesterday’s speech from Governor Lowe. Looking at the
The Asian session was generally upbeat today followed the positive lead from European and Wall Street overnight. The bottom fell out of the Aussie dollar as Governor Lowe indicated a “more evenly balanced” approach to interest rates – read: they’re gunna cut! Due to the Chinese New Year holiday only a few share markets are
By Chris Becker A big rally in shares on European markets overnight, followed by solid moves on Wall Street will ensure a robust session here in Asia on the open. The USD rose slightly although gold came back, but the biggest casualty was Pound Sterling dropping to a near monthly low. Looking at the action
The Asian session was mixed today due to the Chinese New Year holiday with only a few markets open, Japanese bourses put in a scratch session while the ASX200 launched higher on the post-slap on the wrist “don’t do that again” bank trade. The RBA did nothing at its meeting this afternoon, keeping rates steady
By Chris Becker A mixed session in overnight markets with European stocks retreating while US bourses advanced alongside the USD with bond yields also on the up and up. Without much dataflow except some earnings reports, markets have nothing but the new Fed trend to go on, and no news is good news for most
The Asian session starts the week in a strong position, stocks bouncing after the coming and going of Friday nights US unemployment print, which saw a general advance in the USD. Australian macro news was not good today, sending the Aussie lower before tomorrow’s RBA meeting while offshore trading in Yuan was quite volatile due
By Chris Becker The February non-farm payroll numbers came and passed on Friday night sending markets back into caution mode as the print solidified the Federal Reserve new-ish dovish mood that patience on further interest rate rises is warranted. Looking at Chinese stocks first, where last week saw the Shanghai Composite finally stabilise above tentative
Outside China it’s been a flat finish in the Asian session with most stock markets putting in scratch results as the US/China trade talks recommence. Currency markets are also sanguine although the Yuan has weakened for the first time this week leading into tonights NFP print. Chinese shares continue to move higher with the mainland
By Chris Becker The USD has recovered slightly from the post FOMC dovish sentiment move as US stocks continued their rally as solid earnings reports keep coming in. European shares are a little rattled by the Italian recession now baked in while German unemployment was unchanged, the ECB is looking down the barrel of more
The Asian session was dominated by the release of the latest Chinese PMI manufacturing numbers, which remained in contraction mode, while the PBOC gave the Yuan a big push higher against USD, manuevering before the latest round of trade talks with the US. The reaction to the Federal Reserve’s meeting overnight has seen most undollar
By Chris Becker A newly dovish Fed is goosing risk markets and sending the USD into a tailspin overnight, with the latest FOMC Meeting resulting in a hold on any further rate rises. The Brexit shenanigans continued but had no material impact on Pound while other undollar currencies like gold lept higher. Today will be
Leading up to tonight’s FOMC meeting, stocks in Asia are somewhat mixed and rolling around without any big moves. The Australian dollar blipped up towards the 72 handle on the latest CPI print which was slightly higher than expected, while Yen was unchanged but offshore trading in Yuan strengthened considerably. Chinese shares are mixed with the
By Chris Becker Risk sentiment was basically unchanged overnight with all eyes on the continued Brexit vote and re-negotiations with Pound Sterling dropping while other currencies remained stable. The leadup to the FOMC meeting is keeping caution at bay with the latest consumer confidence numbers also showing the effects of Trump’s government shutdown. Looking at
Caution reigns as traders weigh up the next FOMC meeting and continued US earnings, as the fallout from Caterpillar’s result last night and no further developments in US/China trade talks kept risk off the table. Currencies are relatively stable although the Kiwi is seeing a late bid, while the PBOC strengthening of the Yuan fix
By Chris Becker Some pretty poor earnings reports took the wind out of the sails of US stocks last night, with Caterpillar hurting from the ongoing US China trade war. Treasury yields fell as a result, with gold and other undollar currencies pushing higher as the USD retreated. I think US markets preferred the government
by Chris Becker More doom and gloom from the currency forecast brigade this morning, with HSBC and Rabobank both pipping sub-70c levels for the Australian dollar before the end of the year as the RBA is poised to cut rates after failing to dampen down the bubble it created. From Bloomberg: “The RBA just sat
By Chris Becker A somewhat mixed night on equity markets with most of the action again in currencies as Mario Draghi pulled the rug out from under the Euro on his “downside risk” comments, as speculation continues to mount about the outcome of the US/China trade talks. The continued Trump government shutdown is not helping
It’s been a very interesting day here in Asia with most action again centered on currency markets with the BOJ meeting, Australian unemployment and the NAB interest rate hike dominating. The Aussie dollar has been on a roller coaster, falling against almost ready after spiking following the unemployment print, with other currencies stable moving into
by Chris Becker Oh it’s been a fun day so far trading Aussie dollar! First the numberwang unemployment print, now the National Australia Bank (NAB) hiking interest rates out of cycle. Bang comes down the Australian dollar: From the horse’s mouth: NAB Chief Customer Officer – Consumer Banking, Mike Baird said the decision to increase
by Chris Becker The crew at Capital Economics are out with another very bearish forecast, reckoning the Pacific Peso is going to crash to 60c this year against the USD. After last week downgrading its longer term forecast for the RBA’s move on interest rates – with a view of 1% as the housing market
By Chris Becker A tenous night on Wall Street with solid earnings reports unable to breach the caution over the continued Trump government shutdown nor the tension over the US/China trade delegation, with the White House admitting a near certain 0% GDP growth for Q1 not helping either. Pound Sterling and Euro jumped higher on
It’s been an interesting day here in Asia with most action on currency markets as shares continued their cautious mood from the falls on Wall Street overnight. The BOJ meeting and NZ CPI print caused the most movement, as the PBOC weakened Yuan again, offshore trading tumbled sending the pair back to its Friday low. Chinese
By Chris Becker A slew of concerns wracked overnight markets with the return of US traders not helping, the downgraded IMF forecasts plus mixed news and reports about the US/Chinese trade delegation leading to selloffs as overbought stocks pulled back. Poor sentiment on the closely watched German ZEW survey plus a slump in existing home