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.

21

Macro Afternoon

Asian stocks are generally directionless as the region picks up mixed cues from Wall Street overnight with the stronger USD and more hawkish Fed keeping risk sentiment at bay. The USD has pushed local currencies around again although the Australian dollar has dropped on today’s consumer sentiment print. Meanwhile oil prices are just holding on

0

Macro Morning

Wall Street was again hesitant overnight as traders continue to absorb the impact of quite strong US unemployment print from Friday night plus the latest Congress machinations around spending. The USD remains strong against most of the major currencies although the Australian dollar has picked up pace to try to get back to its pre-RBA

46

Macro Afternoon

Asian stocks are having a mixed start to the trading week as markets react to Friday night’s US unemployment print which was much stronger than expected. The resulting stronger USD has pushed local currencies around, although the Australian dollar has lifted above the 69 cent level, but remains in a precarious position. Meanwhile oil prices

0

Macro Morning

Wall Street was mixed on Friday night due to the quite strong US non-farm payrolls aka NFP aka unemployment print, with the USD regaining ground against all of the major currencies as the Fed has a clear path to more rate rises. The Australian dollar was put back in its place as the RBA can’t

78

Macro Afternoon

Asian stocks are having a solid session to finish the trading week as markets position themselves for what is likely to be a robust US unemployment print tonight. The USD is mixed versus most of the major currencies, although the Australian dollar is caught between the RBA playing catchup and the Fed as it hovers

1

Macro Morning

Wall Street stalled overnight on some disappointing earnings while European markets continued their surge as the Bank of England was the latest to raise interest rates. Currency markets are still prepping for tonight’s US non-farm payrolls aka unemployment print, with the USD pulling back most of its recent gains particularly against Euro, although Pound Sterling

0

Australian dollar bounces as oil breaks

DXY was down solidly last night as EUR rallies: AUD took its cue: But oil broke, a distinct break of pattern with just about everything: Weirdly, metals lifted. If oil keeps falling then this won’t last: Miners were flat even as iron ore tanks: EM popped: But not junk: The curve is sinking ever deeper

102

Macro Afternoon

Asian stocks are having a fairly solid session, although Aussie stocks are missing out on the action despite the record trade surplus. The USD is holding on to its overnight reversal gains with the Australian dollar trying to clawback its post RBA rate rise downtrend while Yen continues to weaken. Meanwhile oil prices are continuing

0

Macro Morning

Risk sentiment continues to flip flop on economic releases and macro events with US services PMI surveys surprising to the upside alongside European measures as well, with some calming words from Fed officials helping. Wall Street rallied strongly, up nearly 2% across the board which will provide a catalyst for more buying in the region

9

Australia dollar firms as oil slumps

DXY held its gain last night: AUD rose anyway as Taiwan tensions eased: Oil broke. Big downside potential here: If so, metals will go too: And miners: EM stocks were OK: And junk bounced: The yield curve was smashed: But nothing gets in the way of stocks: Westpac has the wrap: Event Wrap US services

58

Macro Afternoon

Asian stocks are having another very mixed session given the rising tensions around Taiwan and China and the somewhat volatile session on overnight markets due to more hawkish Fed talk. The USD is holding on to its overnight reversal gains with the Australian dollar having slumped post the latest rate rise by the RBA, while

2

Macro Morning

Risk sentiment has flipped to one of unease given the combination of further hawkish comments from the Fed and heightened tensions over US Speaker Pelosi’s visit to Taiwan, confirming the glass jaw of Chinese diplomacy is still as fragile as ever. This sent Chinese stock markets down sharply yesterday with currency volatility not far behind

48

Macro Afternoon

Asian stocks are having a poor session given the rising tensions in China and a pause overnight from more hawkish Fed talk, with Chinese stocks continuing their selling while the RBA meeting went and gone with no change in local stocks. The Australian dollar slumped on the 50bps rise by the RBA, after failing to

3

Australian dollar rally stalls

DXY is still falling as EUR bounces: The AUD materially underperformed the DXY sag: Oil dumped: Dirt too: And miners: Plus all EM: Yields fell: But stocks did too: Westpac has the wrap: Event Wrap US ISM manufacturing survey at 52.8 was above estimates of 52.0 (prior 53.0). The details showed a sharp pullback in both

55

Macro Afternoon

Asian stocks are having a solid start to the trading week with Chinese stocks still the laggards but avoiding the steep falls from Friday’s session. The mixed earnings from Wall Street is not overshadowing risk sentiment as all risk markets keep lifting as the USD strength wanes slightly. Yen remains strong while the Australian dollar

1

US dollar bull market intact

Some nice charts on why the DXY bull market is not over from The Market Ear. ———————————————————————————————————————————————— Not a recipe for sustained USD weakness Softer yields in the presence of weak growth is not a recipe for sustained USD weakness JPM FX EUR: Lower for longer GS FX does not think the recent recovery in

1

Macro Morning

Risk sentiment remains quiet upbeat as share markets continue to ignore inflationary spikes and poor economic data with the latest US personal income and consumer sentiment results intially pushing USD higher before retracing later. Currency markets are still pushing for a weaker USD although the Euro remains in an holding pattern with the Australian dollar

5

Australian dollar short squeeze flames out

DXY is down, down: But, the AUD squeeze has also hit trouble: Markets are still moderately short AUD: Oil and gold are gesturing at reflation: And metals: Plus miners: EM stocks not so much: But junk is ripping: As Treasuries rally hard: Sending stocks barmy: Friday evening printed two nasty inflation outcomes. Europe is still

118

Macro Afternoon

Asian stocks are having a very mixed end to the trading week with Chinese stocks pulling back strongly on the poor US GDP rpint, while Australian markets are having grand time to push the ASX200 above 6900 points. Market’s are still absorbing the latest Fed rate hike and subsequent slowdown signaling with the USD losing

1

Macro Morning

Risk sentiment remain ebullient overnight as markets basically ignored the latest disappointing US GDP print as German inflation picked up higher than expected. Wall Street and European stocks rose around 1% across the board while the USD was down slightly, as Euro remains in an holding pattern with the Australian dollar almost pushing through the

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Macro Afternoon

Asian stocks are having a relatively good response to the overnight higher risk sentiment following the latest Fed rate hike and subsequent slowdown signals, yet Chinese shares remain the laggard in the region. Stronger moves against USD are still holding on with the Australian dollar just above the 70 level while oil prices are slowly

3

Macro Morning

Risk sentiment turned around overnight as markets reacted positively to the latest Federal Reserve rate hike, with signalling that its not going to go as high as expected. This sent Wall Street up more than 2% across the board and pushed the USD down against all the undollars, with the Australian dollar almost pushing through

60

Macro Afternoon

Asian stocks are actually looking to finish slightly higher as the overnight wobbles have not translated into the falls expected in today’s session, as traders await tonight’s FOMC meeting. The USD remains in a holding pattern against the undollars with today’s dartboard CPI print not really affecting the Australian dollar, still hovering above the 69