And it ain’t pretty. The Aussie bond market boom is back with more 2020 highs (yield lows): It has steepened a little since last year, but the curve is still inverted out to the five year indicating weak growth at best and high recession risk for years ahead: In turn, this has spreads falling versus
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 European markets fell overnight as Wall Street barely eked out a scratch session, while the bond market and USD went nowhere in a hesitant fashion across the risk complex. The Canadian Loonie fell smartly on the release of the soft CPI data while Pound Sterling lifted on a spike in UK business
It’s increasingly likely that China is going to have to rerun its draconian SARS episode to stop the new coronavirus. The spread is exploding, via the ABC: There are now 544 cases of novel coronavirus reported across China, with 17 confirmed deaths — almost double that reported a day earlier — according to reports in
DXY eased overnight: The Australian dollar was hopsitalised across the board: Gold hung on: Oil gave in: As did metals: Miners only care about iron ore: EM stocks bounced: But junk is signalling possible trouble: Treasuries were bid: Bunds too: Aussie most: Stocks to the moon again: Westpac has the data wrap: Event Wrap UK’s firm
Markets in Asia have rebounded having absorbed the Chinese virus fears with a sea of green across stocks and European/US futures looking bullish. Chinese stocks have moved higher in solid reversals, with the Shanghai Composite rising nearly 0.4% to close at 3063 points, while the Hang Seng Index arrested its very sharp fall from yesterday,
By Chris Becker Risk markets are getting nervous about the Chinese virus outbreak which sent Wall Street lower overnight while gnashing of teeth in Davos at the World Economic Forum did nothing to persuade further selloffs. The latest German ZEW survey surprised on the upside, giving the Euro a temporary boost before reversing completely on
DXY softened a touch last night: But that couldn’t save the Australian dollar which collapsed with coronavirus: Gold is still strong: Oil is weak when Libya troubles don’t matter: Metals fell: Big miners whiplashed lower: With EM stocks: Junk softened: As Treasuries were bid: Bunds less so: Aussie bonds boomed: Falling yields helped prevent a
There are two angles to examine as coronavirus spreads in China and South East Asia. The first is health related. The second is economic. Australia is about see a wave of new Chinese tourists and students just as coronavius slips the CCP noose. Some 350k Chinese toursists arrive through the January/February period, a large swath
Markets have just caught a cold as Bloomie updated the latest propaganda from China on coronavirus: The outbreak of a virus originating in central China entered a new phase of severity as multiple medical workers were reported to have been infected and the death count grew to four people. The spread to medical workers indicates
By Chris Becker A public holiday on Wall Street was enough to take the wind out of the bubble blowers overnight with European markets putting in mild scratch session, while bond markets drifted around. The IMF lowered their growth forecasts in the recent release at Davos while oil prices came back after reaching a new
Asian stock markets are creeping ever higher, lifting by the megabullish sentiment on Wall Street from Friday night with more record highs and new yearly highs the order of the day. Chinese stocks have diverted in fortune again with the goosed Shanghai Composite lifting nearly 0.5% to almost start the week back above the 3100
By Chris Becker Another record night on Wall Street as institutional memories of past bubbles are erased and everyone presses the buy button! Solid US economic data on Friday night, namely industrial production for December imbibed risk to improve the outlook for 2020, with the USD surging against Euro in response. Commodities rose slightly alongside
Friday night DXY took off. CNY is a rocket: The Australian dollar was belted across the board: CFTC shorts have cleared to their lowest level in nearly two years at -20k, freeing up downside: Gold eked out gains despite DXY: Same with oil: And metals: Miners are iron ore incarnate: EM stocks flew: It’s a
Via Fox: White House officials are scrambling to produce an election year fiscal stimulus plan that is likely to include tax cuts to juice the economy and stock market ahead of the 2020 presidential contest, FOX Business has learned. The stimulus would be a way to have an alternate message to the proposals from nearly
DXYwas firm last night. CNY is flying, bizarrely, as China eases: The Australian dollar is going nowhere versus DMs: EMs were a little weaker: Gold is holding gains in the hope of a falling DXY. I’m not confident: Oil lifted: Metals are still not very interested in the great reflation: Miners have stalled: EM stocks
Most Asian stock markets remained where they started trading today as the response to the signing of the US/China trade deal was not as bullish as expected. Chinese stocks continue to struggle with a higher Yuan with the Shanghai Composite falling nearly 0.5% to remain well below the 3100 points level, closing at 3074 points,
By Chris Becker Depsite the signing of the Phase 1 trade deal between China and the US, sentiment soured overnight with Wall Street just scraping in with scratch session with focus actually on the impending impeachment trial in the Senate. The USD unwound its earlier gains while Bitcoin continued its big meltup, almost approaching $9000
Via Bloomberg: The Aussie could slide more than 5% to 65 U.S. cents this year, according to QIC Ltd. and Capital Economics. If Beijing buys more American goods at the expense of Australian products as part of an accord, that’s another negative for a currency that’s under pressure from slowing economic growth and the prospect of further policy easing.
Most Asian stock markets slipped in trading today as the response to the cooler than expected US CPI print and a much higher Yuan, all in anticipation of the signing of the Phase 1 US/China trade deal takes risk off the table temporarily. Chinese stocks are now struggling to absorbing the Yuan rise with the
Via Shane Oliver: Introduction The Australian bushfire season that began in September has been horrific with more than 7 million hectares of bush destroyed, more than 25 deaths, significant loss of livestock, estimates of more than a billion wildlife animals killed and more than 1800 homes destroyed. More than 200 fires are still burning. Following
By Chris Becker Risk markets are trying to make new record highs again but the slightly softer than expected CPI print in the US overnight shook up the complex, with mixed results on Wall Street and scratch sessions across the European continent. Currency markets were generally contained with the majors not moving much while Pound
DXY was down overnight: The Australian dollar eased against DMs: Did better against EMs: CFTC positioning is back to its lowest net short since in over a year at -27k contracts: Gold faded: Oil held on: Metals were mixed: Miners soft: EM stocks have been partying: And junk: But US yields have turned down: Even
By Chris Becker Another bullish day to be expected here in Asia with another record high on Wall Street overnight pushing the risk complex along with tech stocks leading the way. The poor US jobs print from Friday seems to have been forgotten as focus shifts more to risk taking, but currency markets were relatively