By Chris Becker The emergency EuroGroup meeting last night on the Greek debt crisis kept most risk markets in limbo in the last 24 hours, with a possible resolution leaking out to the newswires this morning, sending some futures racing up. Coupled with no significant economic reports, the catalysts for action on the ground were thin,
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 Last night, speculation regarding a possible compromise on Greek debt sent stocks up and Greek bond yields down while oil and other commodities were smacked down again. With only one day left before the emergency EuroGroup meeting tomorrow time is running out but the optimists seem to be winning here. In Europe,
By Chris Becker Ructions around the continued “standoff” on Greek debt crisis continues to play out on risk markets, with European bourses falling swiftly, dragging down the US and Asia today. Greek bonds continued to be sold off with 10 year yields jumping above 10% again, while German bunds slipped to 0.35% in comparison. If ever there
By Chris Becker A surprisingly robust NFP print on Friday night from the US plus continued “standoff” on Greek debt did not imbibe confidence on global markets (read: did not pave way for cheap money to flood into funds), with most bourses down and only another solid day for oil providing action on the long
By Chris Becker Another mixed night on macro markets as the argy bargy over the Greek debt crisis continued, weighing on European stocks, while the initial jobless claims preview to tonight’s non-farm payrolls came in better than expected. Another rebound in oil and a blowout in the US trade deficit has seen the USD weaken
By Chris Becker A very mixed night on macro markets with news of the ECB pushing back on Greece’s modest proposal as they hold to their bailout conditions, as Euro-wide and US services PMIs come in on expectations with no surprises save some good news for European retail sales. Oil sharply reversed course on much
By Chris Becker A boost in the ZEW German/EZ economic confidence print and continued support for an ECB printing press fervour tomorrow kept European stocks well bid. Oil fell over again and US stocks were mixed as USD continued to gain strength as gold looks like uncoupling as it approaches $1300USD per ounce. It was green
by Chris Becker With the United States on holiday (MLK Day) and only third tier economic releases, the only thing for markets to go on last night was speculation about what type of QE will be announced by the ECB later this week. European stocks rallied while oil and other commodities fell, with copper down 1.5%
by Chris Becker After the SNB sheniganas Friday nights market action was one of relief across all risk markets. The German and EZ CPI results which came in on expectations but still drifting lower gave European markets a lift, while the US core CPI remained under 2% with Michigan consumer confidence bouncing strongly. The DAX
by Chris Weston, IG These are strange times for global markets. When you see a 425-point reversal on the Dow Jones and a 48-handle move in the S&P 500 on limited news, you know things are not quite right. You could easily explain the confusion with a quick assessment, as oil prices are sitting at $46, CME
by Stan Shamu, IG Source: Bloomberg With oil prices trading where they are and the demand/supply dynamics unlikely to change anytime soon, we are bound to get some aggressive downgrades by analysts at some point. Goldman Sachs reduced its global crude price forecasts, saying inventories will increase in the first half of this year and adding it’ll
by Chris Weston, IG Having been away from markets for nearly a month, it’s always interesting to see things from a new perspective; to get one’s trading psyche in the right space so to speak. Source: Bloomberg The first thing that comes to mind is the elevated levels of volatility, with the VIX index averaging
by Stan Shamu, IG Additionally, oil prices have found some stability with a rebound helping to calm investor nerves. Investors continue to speculate on European Central Bank action and comments by ECB President Mario Draghi in a letter to lawmakers suggesting ECB measures may include sovereign bond purchases fuelled this notion further. The euro came
by Chris Becker Risk markets, particularly in Europe exploded last night even as German factory orders tumbled, European consider confidence weakened further and the BOE held fire on interest rates and its own QE program steady. It was news out of the ECB that stimulus measures are all but certain to be announced at the
by Stan Shamu, IG Equities are enjoying some relief as investors react to the prospect of further central bank easing, with the ECB in focus. Source: Bloomberg Eurozone CPI fell 0.2% in December when the market was expecting a flat reading. Earlier in the week, we had already seen a disappointing reading out of Germany
by Chris Becker The Aussie battler broke through a significant low overnight, hitting 80.30 against the USD, taking out the monthly lows in mid-2010 (Greek Crisis Mk.1 remember?) and back to almost post-GFC bottom lows in early 2009: It wasn’t just USD of course, as the faithful predictor of safe harbor abandonment – AUDNZD –
by Stan Shamu, IG Greece took a breather with some European markets closed in observance of Epiphany Day. Equities have continued to decline with investors flocking to bonds as global markets navigate an uncertain period yet again. JGBs have been a preferred destination with yields on the 10-yr dropping to a record low of 0.28%.
by Stan Shamu, IG (For Chris Weston) The unwind in equities has continued with markets mostly risk-off on flaring oil and Greece concerns. Source: Bloomberg As oil prices ventur to levels not seen in over five years, the energy space is predictably the hardest hit, seeing indiscriminate selling across the board. While the initial problem was the
by Chris Becker Santa (or Janet depending on your spelling) has arrived! A stunning bounce in risk since the FOMC meeting with stocks soaring, bonds falling and oil going fa-la-la-la down down down. First off the coal in the stocking, with Treasuries having their worst sell off in nearly two years as capital rotated out
by Chris Becker Thank you Janet Yellen shouted most traders overnight as the FOMC meeting and press conference wrapped up, sending stocks bouncing and risk doubling down again. Buy the dip works! (until it doesn’t….) US stocks were the main beneficiaries, with the S&P500 up over 40 points or 2% in a beautiful upswing: I’m
by Chris Becker The RBA Minutes from its last meeting are out this morning. Here are the quicknotes courtesy of ForexLive: Further fall in Australian dollar needed for economy Prudent course likely to be period of rate stability Board noted that market expected easing next year, discussed factors behind those market expectations AUD still above
by Chris Becker The Monday night open in north Atlantic risk markets confirmed Friday’s nights fear as most stock markets fell, with oil continuining its freefall. The US Empire Manufacturing Index release in the middle of the session didn’t help, registering a surprising lower growth, as industrial production for November surprised on the upside. It
By Chris Becker Risk is wobbling as the oil crash combined with weaker than expected Chinese industrial production is shooting down confidence fairies around the globe. Friday night was not quite a bath of blood on equity markets, but key technical levels have been taken out on the S&P500 and European bourses (especially the FTSE) with
By Chris Becker Several firsts/records overnight on markets, with WTI oil cracking below $60, Greek stock markets now down 20% this month so far and a Aussie dollar new monthly low at the 82 cents level is threatened via a late to the party Glenn Stevens talkfest. Plus another near-enough first that I’ll show at
By Chris Becker The commodity complex continues to careen out of control with oil off 4%, dragging down copper (-1.2%) and gold, but more importantly, sucking the confidence out of stocks. This was on the back of an OPEC output forecast that was cut because of the domestic US shale oil supply but the price