By Chris Becker A mixed night on overseas markets with risk taking somewhat of a holiday in anticipation of the US mid-term elections, with the USD and bond yields falling while stocks kept treading water. The US ISM services print was very encouraging while Brexit negotiations were cooled once again on the Ireland border question.
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.
It’s been an interesting start to the week here in Asia with minor falls across the board on stock markets, with currencies also moving sharply around on the trifecta of Brexit news, BOJ Kuroda’s press conference and the reaction to Friday night’s non-farm payroll (NFP) report, aka US unemployment. The Shanghai Composite is down over 1% going
By Chris Becker A very strong non-farm payroll (NFP) report on US unemployment on Friday night did not help the nascent recovery on equity markets. US markets fell around 1% after gaining more than that on almost every session during the week, with the USD reversing what had been a steep selloff against the major
A somewhat mixed end to the week here in Asia with most stock markets rising the wave of confidence that has set in on Wall Street earlier. Despite advancing local currencies due to a reversion in USD sentiment, plus falling oil prices, stocks look set to build from here – if tonight’s US unemployment print
By Chris Becker Reports of a potential Brexit deal, plus solid earnings by Apple overnight saw the risk sentiment shift higher, with the USD the main casualty. All the major currencies surged against King Dollar, particularly Aussie, while oil prices fell by nearly 2% on rising supply pressures. It looks like another risk positive day
Outside Japan it’s been a positive session on Asian stock markets today with domestic earnings troubles and a slightly stronger Yen the headwinds. The rest of the region is continuing the overnight bounce from Wall Street as traders struggle to build their confidence after an awful (if you’re long only) October. The Shanghai Composite was moving higher
The bounce is here in full with a sea of green across Asian stock markets today, navigating through a steady BOJ interest rate meeting and a somewhat disappointing Chinese manufacturing PMI print. Australian inflation figures – out of date given it’s quarterly – didn’t move the Aussie dollar that much either. The Shanghai Composite is moving higher,
By Chris Becker Overnight saw a big bounce on Wall Street late in the session, as commodity prices retreating on continued US-Chinese trade talks. The equity correction is not yet over but there are signs of selling exhaustion taking place on both sides of the Atlantic, with futures indicating a similar bounce here in Asia
By Chris Becker Another volatile night on markets with European stocks leading a bounceback that then faltered before crashing on Wall Street with a very late “Hail Mary” recovery in the last hour of trading. Currency markets were not as crazy but the USD is reasserting itself against all the majors, a small bounce on
Quite a mixed start to the week here in Asia with mainland Chinese stocks falling swiftly, while the rest of the region is putting on minor gains, the ASX200 the standout, as some confidence returns. The USD is retreating slightly against the majors, with the Aussie dollar spiking, following on from its Friday night reversal.
By Chris Becker It’s not been a good week if you’re a long only holder of stocks, with rising volatility spilling over into some frenetic selling on Wall Street and other interconnected markets. Friday night saw another bad finish to the week with US stocks now at a six month low, tech stocks leading the
By Chris Becker Another bounceback overnight but will it stick as stock markets remain in shock with too may series of volatile sessions starting to exhaust traders (me included). Tech stocks led the way with the NASDAQ lifting nearly 3%, while Treasury yields spiked again while currencies were relatively calm as the ECB stayed the
It’s been a tough day for the long only crowd in Asian shares across the region, with falls of a similar magnitude to those of Wall Street overnight. Volatility in FX markets has been sanguine however, with the Aussie bouncing slightly while the Kiwi deflates in the wake of the equity selloff, although this lack of
By Chris Becker The equity correction ramped up significantly overnight with big outsize falls on Wall Street, the NASDAQ off by more than 4% (although Tesla did well on its profitable quarter) while the broader S&P500 lost over 3%. This does not bode well for Asian stocks today with runs to safe havens like Yen
Stock markets continue their topsy turvy ride with a bounceback here in Asia following a very nervous night on Wall Street. Chinese stocks are leading the charge while a lower Yen is helping Japanese bourses, the USD is also weakening against the Aussie and the Kiwi. The Shanghai Composite did well at the start of the
By Chris Becker The equity correction continued overnight with steep falls on Wall Street that were barely covered by the end of the session, with oil prices cratering in the wake of the Saudi’s murderous own-goal. This finally caused a rush to safety in Treasuries, with the 10 year yield falling to 3.11% and the
By Chris Becker US markets set the mood overnight, one of nerves and risk aversion with the S&P500 retracing back to a two weekly low, while the USD gained against all the major currencies. Treasury yields remain elevated, but largely unchanged, while the chance of another Fed rate hike in December rose again overnight. Oil
Outside Australia it’s been a much better return to form for equities here in Asia, particularly in China which has extended its bounce from Friday in both Hong Kong and the mainland, mainly on the back of a proposed new tax plan for households to stimulate the economy. FX markets have been generally positive for
By Chris Becker You could call activity on equity markets last week as a return to stability, but that’s a stretch, as confidence remains cratered. A variety of macro and country specific risks continue to rise, from the Saudi’s malelovence impact on oil prices, Chinese share prices now in their fourth year of a bear
By Chris Becker The correction is back as US stocks led the selloff overnight, Treasury yields came back slightly while the USD rose against most the majors as risk sentiment retreated back to the mean, with Yen getting the safe haven bid. Sadly for the Saudis, oil prices continue to crater with WTI and Brent
The bounce in equities has been shortlived with only the Australian market not dipping into the red this afternoon, with local employment data keeping the bears away for another day. A weaker Yuan fix plus reduced confidence has seen Chinese stocks selloff sharply while gold is holding on, other undollar assets are falling heading into
By Chris Becker USD came back to strength in the wake of the hawkish FOMC minutes, quickly taking the legs out from under the tentative bounceback in equity markets. All the major currencies slipped against King Dollar with oil prices also falling on the back of Pompeo’s mewing with the Saudis. Treasury yields continue to
Finally, a decent rebound in stock prices in Asia, as markets follow the dual European/US mood and lift across the board. The problem is with Treasury yields still not lowering and the USD remaining weak, can this bounce be sustained through the week with another earnings season around the corner. The Shanghai Composite finished the session up
By Chris Becker Here comes the bounce with tech stocks leading the charge on Wall Street, exhausted selling on equity markets has turned into frantic short covering with big moves overnight. Despite the good mood, Treasury yields continue to lift higher while the USD advanced against traditional safe havens, the Aussie and Kiwi remain surprisingly
A mixed day here in Asia which is better than red across the baord with Japanese stocks leading the way, pulling along local shares as the USD recovered slightly. The Chinese CPI print picked up slightly as the PBOC signalled its intend on defending the major 7 handle on the Yuan against USD, with the official