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.

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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

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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

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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

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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

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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

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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

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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

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Australian dollar: Past the sweet spot

Bloomberg is quoting US Treasury Secretary Tim Geithner this morning as saying that there is an increased: “…threat of cascading default, bank runs and catastrophic risk” from the European crisis. In the context of the Australian dollar, any recoveries you see this week that are unrelated to a resolution of this mess should be kept

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How low will the Australian dollar go?

The Australian dollar fell precipitously overnight and as I sat down earlier this morning it was actually trading under 0.9700. Remembering that earlier this week the AUD was above 1.03. This is not unexpected to our readers and while I don’t want to turn this into a trading blog it is worth having a look

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Australian dollar crash

The FOMC released the decision from its two day meeting early this morning and, as widely anticipated, they announced that they were going to extend the duration of their Treasury holdings in order to try to get the entire interest rate curve lower. They said: …decided today to extend the average maturity of its holdings

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Australia needs a Tobin tax

But I see offhand no other way to prevent financial transactions disguised as trade – James Tobin In 1972, after the collapse of the Bretton Woods system (where currencies were pegged to the USD, which itself was backed by gold), economist James Tobin proposed a tax on the currency exchange. As he says: The tax

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Australian dollar caught in euro downdraft

Italy was downgraded by S&P this morning and it has served to underpin the poor price action in European equities overnight, knocked the Dow and S&P futures out of their slumber and whacked the AUD and EUR which look headed a couple of cents lower. I’ve been trying to post for a couple of hours

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Australian dollar weekly wrap

Welcome to this week’s edition of the Australian Dollar weekly wrap and outlook. We’ve moved it to Monday to better sync with trade. The AUD traded down to a low around 1.0180 last week as concerns grew that Europe was going to be unable to get itself sorted and avoid a Greek bailout. The positive

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Australian dollar weekly wrap

Hi Everyone…first wrap up for a few weeks after my break and after last nights moves looked very much like risk positions were pared with pretty much everything falling. As I write: the Dow is down 2.69%, S&P 500 similar amounts, European bourses fell between 3-4% the EUR is off 1.67% AUD and NZD are down 1.05% Crude fell

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Currency cold war

Unusual times call for unusual measures and the move by the Swiss National Bank (SNB) to fix the rate of the Swiss Franc against the Euro this week certainly qualifies. From a Swiss point of view I applaud it wholeheartedly but from a global markets point of view I worry that this move will have

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GDP rebounds

The ABS released their National Accounts aggregates today, with a broad surge in GDP growth since the dismal natural disaster-affected first quarter.  The key figures are below. Also important is the revision to the March quarter – up from -1.1% to -0.9%, leaving GDP up 1.38% over the year to June, and per capita GDP

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Australian dollar calm returning?

Last week was a tumultuous week for the AUD trading down to important support at 0.9929 where it held in very well before bouncing to sit this morning at 1.0370 as I write. You can see in the chart above the volatility of the AUD and some selected risk markets on a hourly basis, indexed to 100,

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Data Vault

Australian Data The Australian data calendar was dominated by employment and confidence figures this week and unfortunately neither provided any evidence of an improving outlook for the domestic economy with leading indicators actually suggesting we are in for weaker outcomes over the reminder of 2011. Housing finance was also subdued with investors becoming increasingly disenchanted

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Australian dollar bull trap

There is no denying that the AUD, when it wants to, is a volatile beast, when the buyers clear out it simply crashes. Yesterday was a case in point and while the AUD was clearly crashing with other risk assets there was definately a buyers strike after whoever was defending 1.00 (potentially the RBA) stepped

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Is it a bird? Is it a plane? No, it’s Rogoff

What a day today for markets. Everything was under pressure early and then Ken Rogoff turns up on Bloomberg talking about QE3 and off we go. This could be true or a complete furphy as it is just coincidence that the Fed is due to make an announcement on monetary policy at 2.15pm New York time

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Australian dollar crash

The AUD has fallen 2.45% in the first 26 hours of this trading week and currently sits at 1.0170 as I write. Last week I said that I thought the AUD would fall to 0.9700 within two months and I continue to hold that view even though it might happen much sooner than expected. But how does the

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Currency reservations

In February 2009 after I came back from holidays in Yamba I sat down with a mentor and mapped out how we thought the crisis would manifest over the coming years. I had a massive advantage over many investors and traders in that in my research I had stumbled upon a book written in 1996 by

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Australian Dollar Weekly Wrap

A big week for the AUD as risk finally went off and the AUD tumbled 600 points from the high of the week to finish at 1.0442 in New York this morning. Anyone who talks of safe haven buying now should have to pay these 600 points to charity. On a million dollar AUD position

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Australian dollar downside targets

The AUD traded a 1.0390 to 1.0790 range for a couple of months before breaking out recently and trading all the way up to 1.1080. The ructions in markets have it threatening the bottom of this range as I write, with the AUD at 1.0442 as Europe has walked in and started selling in earnest

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Australian dollar is no safe haven

The AUD has been smashed in the past 36 hours as markets have gone off and fear and uncertainty has risen. From trading 1.1068 earlier in the week it sits at 1.0468 as I write. In many ways it is a resumption of usual transmission for the currency that I believe is the world’s favourite punt. This

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Australian Dollar Weekly Wrap

This week we saw the AUD break higher but not quite go on with it. I got stopped out of my long from the break of 1.0790 with a nice profit but I’m also long from the break of 1.1012 and a bit nervous on that one. And the USD continues to tank as the world

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Australian dollar upside targets

The Aussie has broken the major resistance level and this year’s high at 1.1013 today in the wake then the higher than expected CPI. While it hasn’t really gone on with it yet this break, if sustained, is important in the overall context of where the Aussie might be headed. Look at the long term

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The bullet proof Australian dollar

We have talked often in this space about the idea that the Australian dollar has undergone a rerating over the past year or so and that, as such, will, indeed has, held up better than could have been expected recently given all the turmoil. On Saturday in the Weekly Wrap, I discussed the big positive

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Access goes all in on rate rises

Boy, do we have a market in interest rates. From Bloomberg: Australia’s central bank will increase interest rates three times in the coming year as a mining boom boosts wages and helps the economy recover from natural disasters, a Deloitte Access Economics report showed. High resource prices and strong demand will boost Australian incomes and there