Australian Dollar

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.

5

Australian dollar falls out of bed

The Australian dollar fell out of bed last night as equities fell, emerging market sentiment waned and so called risk assets generally just turned to “off”. It sits this morning at around 1.0530 having made a low at 1.0524 earlier this morning. Where to now? On the hourly chart it looks a little over sold:

11

Australian dollar right on support

The risk rally is faltering at the moment and the Australian dollar is feeling the heat. Last week my mate Omid said in his short piece that 1.0665 was the key support. Similarly Rick Spooner over at CMC Markets had this level as the one to watch on the long he suggested. So there is

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The campaign for national ignorance digs in

Back in 1986 when I did my HSC the teachers told us that we had to read the Sydney Morning Herald in a crucial window during the year because whatever Ross Gittins was writing about was likely to form, or frame, the questions in the Economics exam we were going to sit later in the year. So

17

Australian dollar needs a breather

I have a few rules when it comes to trading and one of them is “be wary of Monday morning Asian moves” this is especially so if it is accompanied by a US holiday. So it’s no surprise that on Wednesday morning the Australian open looks very different to yesterday when the US had not

21

Asia turns to gold

I read on Flipboard over night that US Hedge fund manager John Paulson is getting long gold and telling others to get on board as well because of the inflation that is coming down the road from government policies being run at the moment. With all due respect this sounds like “book talking”. The history

44

It’s competitive devaluation, stupid

The Australian Dollar is higher than it has been in decades. Indeed, it is more than 30 cents higher than the average since it was floated in December 1983. Yet while we see businesses constantly in the news contemplating or actualising job losses and off shoring, the arms of government and policy makers here in

25

Australian dollar rally stalls

I heard the other day that Australian corporates have been buying a little Aussie lately which struck me as odd given how high it is. But equally, it suggested that a fear of further rises is permeating corporate Australia, as I have written a few times in the past couple of weeks. So, given the

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How to save us from the Australian dollar

Here’s a question for you. What does a US job market recovery, low rates from the Fed, ECB, BOE and a rally in risk assets equal for Australia? TROUBLE! Trouble for Australian manufacturing, trouble for Australian tourism operators, trouble for Australian universities and the outward facing education sector in general, trouble for Australian retailers, trouble

29

Australian dollar to the moon

The Cupboard today speculates that the Australian dollar is ready to fly to $1.20. Here is the Citi note that says so. I don’t doubt that this is a possibility with risk on growth and QE3 looming. So far as I can tell, with job losses already accelerating, this would seriously threaten any notion an

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The Australian dollar is going higher

Yesterday Alan Kohler wrote that the Aussie is being bouyed by people using the euro as a funding currency. Last night Nouriel Roubini wrote a piece that said notions of the euro as a funding currency are bunkum. I tend to agree more with Professor Roubini than Mr Kohler but as I wrote back on

6

Time for a euro bounce?

As we all know, the euro has been under pressure again lately, as well it might, given moribund politicians and problems with Club Med (PIIGS as we call them now). But for me, one of the main themes this year may divergence between markets and economics. That is is possible is no surpsie for those of us

2

Australian dollar fails

Overnight I tweeted that the Australian dollar was breaking its downtrend from the highs of last year around 1.1075/80, but it was unable to hold above the crucial 1.0420/30 region and fell back this morning to around 1.0370/80: This zone holds both the downtrend resistance from the high last year but also the 61.8% retracement of the

20

Australian dollar wins the ugly contest

Thin slicing is both a reality and a biological necessity. Whether it’s Malcolm Gladwell in “Blink” or Daniel Kahneman’s System 1  in his latest brilliant book, “Thinking Fast and Slow”  the reality is that there is a part of our brain that, in Kahneman’s words operates automatically and quickly, with little or no effort and no sense of voluntary control. Certainly when it comes

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A new Aussie Euro paradigm?

The Australian Dollar Euro exchange rate has been making new highs this week so its time to talk about whats going on. Last week I posed the question of whether Australia was the new Switzerland. It was a question that I didn’t mean literally but metaphorically. That is, is Australia now the place people see as

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Australia, the new Switzerland?

I have been away for a while and have many things I want to talk about as we enter a new possibly tumultuous year. So this post is a question and a catalyst for future blogs on this and related topics over the next week or so as I prepare to get back into the

15

Euro in a death struggle

We haven’t seen John Talyer for a few months or so, since he forecast Western recessions and a rocketing $US. Clearly I agree with those calls and they look more and more prescient now. Today he has some very interesting things to say about currencies:

5

Australian dollar on the ropes

The Australian dollar is under intense pressure from an unfriendly world which looks to be building into a perfect storm for the world’s bellwether growth currency. It has sold down through the support I talked about earlier in the week and remains biased lower. As you can see in the chart below, it is at a critical 

7

Australian dollar is headed lower

What’s your view on equities, the S&P 500 or the bourses of Europe? The reason I ask you this question is because if you can riddle me that then you know where the Australian dollar is going to head in the next week or so. As the Prince showed earlier today in C0TD, whether its

15

Australian dollar at the edge

We never want to get too bearish just for the sake of it but the Australian Dollars break down through my target from earlier in the week of 1.0322  yesterday and then this morning’s take out of 1.0230 suggests to me we are on the verge of a cascade that may see us all the way

5

Dollar down, manufacturing up

In what has to pass as good news for Australian manufacturing these days, its ongoing recession slowed in October, according to today’s PMI: The decline in manufacturing activity continued in October, albeit at a slower pace. The seasonally adjusted Australian Industry Group-PwC rose 5.1 points to 47.4. (Readings below 50 indicate a contraction in activity

15

Australian dollar falling fast

The Australian dollar has fallen faster than I anticipated when I wrote this morning’s weekly update. Indeed it has already crashed through two of the support levels I identified in this mornings piece. The concerns over MF Global and the massive MOF intervention into USD/JPY which has pushed the Yen 5% lower have certainly accelerated the pace of declines.

8

Australian dollar set to fall

The key to understanding the near term fate of the Australian dollar is that the back end of October has been the polar opposite of the early days of the month. Pessimistic crescendo followed by supreme optimism. The truth is neither emotion is helpful or right, which is why we have a consistent process we

6

Australian dollar’s critical juncture

As I sit and write this week’s Australian dollar piece I am struck by just what an important juncture we currently sit at. I’ll discuss that a little later, but first I wanted to introduce my new stop light for the Australian dollar on a 3 month, 1 month and 1 week basis. This is

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Our mining madness

I had an interesting chat with an old hand in the coal market yesterday. He described how the in the eighties, as Australian coal producers jockeyed to supply Japan, the annual pricing contracts that determined prices and volumes were a like a Presidential cycle. You’d spend a year negotiating, then agree terms, then resume negotiations

12

Australian dollar rally falters

No surprise really that toward the end of the week, and after a week like we saw, that the Australian dollar rallied hard up to 0.9880 then failed.  It seems to me that the short term trading nature of the market is the key driver at present and while on conventional analysis the Australian dollar

20

Australian dollar: where next?

Over the past few days trade in markets went from terribly negative to terribly positive. These swings are symptomatic of a market environment dominated by fear. The Australian dollar is no different and has traded in a range of 0.9702 on Monday to 0.9388 Tuesday and then back to 0.9660/70 overnight. In the grand scheme of

38

Cut rates, trash the dollar

It’s RBA day today and while the Bloomberg survey of 21 market economists finds that none think the RBA will cut rates, I reckon it is time they did. The Australian economy is just not as strong as the RBA had thought as recently as June. The inflation outlook is nowhere near as dire as

8

The Australian dollar rerating

Equities have just finished their worst quarter, in terms of returns, since the dark days of Act 1 of the GFC and the impact of this has been to severly dent Australian dollar sentiment. But even as the dollar teeters on the edge of another cascading fall you’d have to say that the currency is

33

The bots of FX

High Frequency traders (HFT) have been around for a long time. What else were the locals on the SFE back in the floor days and at the establishment of many contracts except HFT? But we never thought of them in the way that many, myself included, think of the HFT guys theses days. No, we

11

Australian dollar: More than just BHP

In the Fairfax press today, Ian Verrender has an article about the currency. If you don’t know anything about the topic at hand it is a well written interesting piece. But it slices too thin and rests on an incorrect premise. Verrender says that : Our sharemarket may already have priced in a global recession but