By Chris Becker The release of the latest Fed minutes didn’t provide the big catalyst expected by markets as the earnings season started with a surprisingly good result from Alcoa. A bigger deal, literally, was the news of an epic takeover/merger of Shell and BG which temporarily gave European bourses a lift before a reversal
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 A very bullish session in Europe deflated as markets opened in the US, with the S&P500 falling 0.2% as confidence wavered before the Alcoa earnings and FOMC meeting minutes released later tonight. Recapping the Asian session, the Shanghai Comp bubble squeaked ever higher, rising 2.5% almost hitting 4000 points. This dragged the
by Chris Becker Holidays and daylight saving changes can cause confusion or even disruption across global markets where in the last four days some observe Easter and others (particularly here in Asia) have not. Its taking some time for the algos (and me) to catch up! Following the April Fools Day ructions, Friday night’s US
by Chris Becker April Fools Day surely sucked in a few more punters on the worldwide asset scramble in the face of seemingly endless stimulus emanating from central banks. But the flies are gathering in the ointment as the macro data rolls through showing a slowing in the 7 year economic cycle, post-GFC. Although only
By Chris Becker Risk markets flopped last night even as German unemployment went down, UK GDP surprised on the upside but EZ CPI indicated a further slip into deflation across the continent. The moves down were probably end of month and quarter repositioning with no macro or central bank talkfests catalysts providing an answer. To
By Chris Becker The confidence fairy spread the pixie dust across risk markets last night as talk of stimulus in China outweighed real economy news like lower earnings for S&P500 companies, lower US consumer spending amid higher home sales. Mergers and buybacks also helped the S&P500 rise more than 1% while European stocks were helped
Fixed income investment management company, Pacific Investment Management Co. (PIMCO), has told investors that it is short the Australian dollar, citing falling commodity prices and interest rates. From Bloomberg: “Our highest conviction views are in the currency markets, and we remain short the yen and the Australian dollar against a long U.S. dollar position”… According
By Chris Becker The fall out from Fridays good-but-bad US unemployment report was tempered last night as the ECBs new QE program began. The central bank began purchasing Italian and German bonds, with the latter’s 10 year yield falling 9 points to only 0.31% as European stocks fell while US stocks rallied on good corporate
By Chris Becker The post-GFC bizarro world continues to shock where a stellar US unemployment print on Friday night sent risk markets reeling, with US stock markets down nearly 2% on the news as the US dollar surged in value against everything on expectations of higher interest rates sooner. Before the print in Europe, we
By Chris Becker Last night the ECB released details of its QE program, which starts in a few days time with €60 billion Euro purchases each month. Alongside, the BOE announced no changes to its interest rate or its own QE program while in the US, factory orders slipped as initial jobless claims surprised slightly
By Chris Becker Risk is mixed to say the least with weak leads from Asia translated into a bullish mood in Europe, helped along by solid service PMI prints and retail sales growth, but then slammed again in the US session even as the non-manufacturing ISM surprised to the upside. Even the oil markets were
By Chris Becker Apologies for lateness today. The weak session in Asia yesterday, which saw the Nikkei flat but the ASX200 lose nearly 0.5% and Chinese stock markets down around 2%, translated into falls on the European and American bourses overnight. Although a solid retail sales print in Germany should have helped the bulls, it
By Chris Becker On the back of an interest rate cut by China, the American bulls returned to risk markets last night, sending the NASDAQ Composite to its previous 2000 bubble high of 5000 points, as the latest ISM manufacturing report was solid amid higher consumer purchases across the US. This good news was shadowed
By Chris Becker Friday night saw two important economic releases surprise to the upside plus another Chinese surprise over the weekend. First, in Europe, the German CPI print for February ticked up which dragged the year-on-year up out of deflation at 0.1%, sending the DAX up nearly 0.9%: Momentum is clearly accelerating here for the
By Chris Becker Following yesterdays “mini-stimulus” by Chinese authorities, almost all Asian bourses rallied, with the Shanghai Comp up 2% and the Nikkei up over 1%, while the local ASX200 was dragged down by the worse than expected private capex figures. The Nikkei is taking another step up into the stratosphere here, becoming seriously overbought
By Chris Becker The mixed day in Asia yesterday has followed through to a flat European and American session overnight, with no major economic releases and just a few central bank jawbones for the market to hinge upon. The Nikkei slipped 0.1% yesterday, remaining in seriously overbought territory as Chinese bourses were mixed, the Shanghai
By Chris Becker Another green day across markets in Asia has again translated to gains in Europe and the US as Fed Chairman Janet Yellen testified in Congress last night kept the party rolling followed by a poorer than expected consumer confidence report that took a little wind out of risk’s sails. In Asia, the Nikkei
By Chris Becker An ebullient day in Asia translated to a solid session in Europe before the American markets came back to reality a bit as oil prices dragged energy stocks down. The fallout or can kick from the Greek debt extensions has lifted risk sentiment with most risk assets lifting including bonds, with the
By Chris Becker It’s not just Queensland and northern NSW that will wake up this morning after a wet weekend with news of a “compromise” deal with Greece sure to make the locals wonder when the rain will stop. The loan extensions “granted” to Greece set the European bourses higher, in the main, with the
By Chris Becker Last night ended with scratch results in most overseas bourses as mixed economic prints, a very dovish set of FOMC minutes and no clear outcome of the Greek debt crisis kept risk holstered. Factory production in the US was weaker than expected as were housing starts which slid from its record high
By Chris Becker Back from a long weekend, US markets shrugged off European debt concerns and pushed risk higher with the S&P500 above 2100 points for the first time ever, while gold and silver were slammed as USD took a breather. First in Europe, the DAX continued its retracement in the cash market before rebounding
By Chris Becker Risk markets continued to focus on the Greek debt crisis, with talks last night at the Eurogroup meeting breaking up on plain speaking by the Greeks. Coupled with a holiday in the US, markets provided little opportunity apart from positioning. The DAX retraced around 0.4% off its new record high, setting up
By Chris Becker Risk markets are up, even though there has been no resolution from the Greek crisis and there was a poor December retail sales figure from the US, as oil rallied nearly 5% again, with news that a ceasefire in Ukraine is imminent probably the main cause. With the Germans conveniently forgetting some
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,
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