by Chris Becker Outside Australia, Asian stock markets are in retreat mode after being mixed yesterday as confidence fades going into tomorrow night’s NFP print, with all risk going into undollars like Yuan, Bitcoin and Yen and of course precious metals. Gold is having another stab at the $2050USD per ounce level with silver again
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 Another record high on Wall Street, pushing the risk complex to yet more stretched valuations as gold also makes another daily record high above the $2000USD per ounce level, with silver outshining with a near 5% gain to be above the $27USD per ounce level. Its all about the weakness of USD
by Chris Becker The trading week finally gathers pace here in Asia with the strong lead on Wall Street converting into broad gains across the risk complex. Gold is trying to have another go at its previous record high, slipping a few dollars as the four hourly chart exhibits a bearish rising wedge pattern (or
DXY rebounded last night but it was not convincing: The Australian dollar fell but it wasn’t convincing, either: Gold held the gains: WTI popped: Dirt was OK: Miners too: EM stocks are marking time: Junk eased: US yields rose! As stocks went nuts: The only chart that matters presented some AUD/SPX dislocation: However, there is
By Chris Becker You can’t beat the optimism out of Wall Street which surged again on tech stocks exuberance, this time on Microsoft taking over TikTok, plus a big beat in US manufacturing conditions. This will lift all boats here in Asia while the USD lifted slightly against the majors, with gold putting in another
Not that this matters much for the deficit, which is now irrelevant, but it will matter to the Australian dollar. Via the AFR: Glencore is working on plans to slash output from Australian coal mines in response to weak prices, in a move that will reinforce the Swiss miner’s reputation as the most active manager
Australian dollar gold is at all-time highs this morning: Australian gold equities are matching the bull market: But note that equities usually very much overshoot the underlying metal before the bull market is done. Given I see gold going to $3000 at least this cycle, the prospects for the miners are excellent. That said, do
By Chris Becker The very interesting divergence on global stock markets continued on Friday night with Wall Street going gaga for tech stock earnings while the rest of the civilized world took a deep breath and realised that COVID-19 troubles are not going away, with steep falls across the remainder of the risk complex. The
DXY rallied Friday night for once but the technical damage appears to have been done. Though, crucially, EUR is yet to break out: The Australian dollar was bashed against DMs: But is smashing EMs: Gold was strong despite DXY: Oil is stalled out: Dirt had a bad night: Miners were hit: EM stocks too: Junk
These kinds of forecasts hang on continued “risk on” flows but they are no longer incredible: NAB has raised its forecasts for all G10 currencies including the Australian dollar. Head of FX strategy Ray Attril says the move “reflects our increased conviction that the recent weakening in the USD is ’for real’ and has a
It’s swift becoming a DXY tank for the ages. EUR is out of control. Germany must be ruing eurobonds already. CNY is riding DXY coattails down in its usual evil supply-side grab: Nobody should be cheering the AUD. We’ve been pivoting to EU for our offshore hedge: Gold is consolidating after its run: Oil was
By Chris Becker An interesting divergence on stock markets overnight as European bourses tanked, falling in line with the falls in 2Q German GDP and increase in Eurozone unemployment, but Wall Street rallied despite the biggest single quarter decline in US GDP history, proving that markets do not equal economics! Coupled with the huge drop
by Chris Becker The mood is mixed again here in Asia despite a small surge overnight on Wall Street as the Federal Reserve re-engaged its dovish narrative. Gold has been unable to crack its overnight high, slipping to the $1958USD per ounce level with silver looking even weaker below $24USD per ounce: In mainland China,
DXY continues its unapologetic free-fall: The Australian dollar is getting blown sky high: Gold wow: Oil meh: Metals ramping: Miners ride on: EM stocks breaking out: Junk too: Yields crushed! Stocks rebounded but still look very t0ppy: The only chart that matters is diminishing as the AUD turns stronger than stocks: The patterns are all
By Chris Becker After a quick pull, the Fed gave markets a solid shove higher overnight in its latest FOMC meeting, keeping its tune in the narrative ballpark to “do whatever it takes” to support the US economy. The USD fell even more to record lows against the majors while Wall Street rallied alongside commodities,
by Chris Becker The mood remains dour here in Asia with most stock markets on the decline alongside the USD, with the volatility still prevalent in precious metals as we head into the next FOMC meeting. Gold is firming but steady at the $1950USD per ounce level after almost hitting $2000 on the spot price
DXY finally bounced a little: The Australian dollar still red hot: Gold turned volatile as it rockets higher: Oil is still a yawn: Dirt was mixed: Miners fell: EM stocks too: Junk eased: Yields keep falling: Nasdaq looks toppy as S&P fights for support. Europe is stuffed by its rising currency: Westpac has the wrap:
By Chris Becker The Fed seemingly pulled the punchbowl overnight, extending its lending program from the September deadline which saw bond yields fall sharply, pulling Wall Street down with it. The volatility in precious metals plus a downbeat consumer confidence print didn’t help restore risk sentiment with European stocks also on the decline. Commodities were
by Chris Becker Asian stock markets have again had a mixed session following yesterday’s faltering start the trading week with a mid session reversal of risk taking as the gold/silver/Bitcoin speculative nexus suddenly reversed their bubble like ascent. Gold almost hit $2000 on the spot price while Bitcoin made a new yearly high. In mainland
By Chris Becker Another shift in sentiment overnight as the risk complex hinges on good economic news and possible coronavirus vaccine developments. Wall Street swung back in favour as the latest durable goods order surprised slightly on the upside, while in Europe the closely watched IFO survey gave some hope yet stock markets were lacklustre.
by Chris Becker Boom! There goes gold… Boom! There goes silver… Boom! There goes Bitcoin… Asian stock markets have opened in mixed fashion to start the trading week with all activity overshadowed by all the moves in undollar assets, lead by gold – now above its previous record high, dragging silver and Bitcoin, which gapped
The yoking of Bitcoin and gold is one of the strangest phenomena in contemporary markets. On the one hand, gold is the ultimate safe-haven asset. On the other, BTC is the least so. One is eminently importable. The other absurdly the opposite. One is pure physical reassurance backed by thousands of years of human history.
By Chris Becker Wall Street and the rest of the risk complex are truly dicing with danger, with European stocks slumping on Friday night while US bourses barely kept above key support levels as rising US/China tensions, and concerns over the spreading Trumpvirus in the US and the lack of any fiscal measures weighed everything