Ahead of the anticipated announcement of the Federal Governments trashing of responsible lending laws by moving oversight of financial lending from ASIC to APRA, Gunnamatta spoke with David Llewellyn-Smith and Leith van Onselen about the implications of the move, and how this positions the Australian economy. The sound is a touch raw, and the discussion
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.
The mixed mood on markets is moving to the positive side, outside of China, with most share markets here in Asia rebounding further than Wall Street did from overnight on the back of potentially more fiscal stimulus from the US congress. The USD is in a very slight retreat after its big run against everything,
Hopium is wafting back into risk markets as the possibility of another fiscal stimulus package in the US got Wall Street off the hook as it teeters on terminal support. Asian and then European bourses were falling going into the late session, but the S&P500 managed to eke out a small gain while the economic
DXY reversed lower last night after its big bounce: That couldn’t save the Australian dollar which kept on falling: Gold bounced: Oil hung on: Metals fell some more: Miners were mixed: EM stocks are not well: But junk managed to stop falling: US yields still stalled: Stocks held on…just: Westpac has the wrap: Overnight Market
Risk sentiment reversed course sharply again overnight, with uncertainty over the US economy via the Federal Reserve the key driver of a selloff on Wall Street despite solid PMI’s in the US. European PMIs returned to retraction mode, although the outlook firmed, while the USD continued to strengthen against everything particularly precious metals and the
The rebound from overnight was only followed through on local markets with the rest of the Asian risk complex still lacking the confidence to ride the BTFD wave. The USD continues to firm against everything, espeically precious metals with silver cracking below $24USD per ounce to a two month low while gold has fallen below
Risk sentiment bounced back overnight following a stumbling start to the week with Wall Street leading the charge but the USD continued to firm against the majors and precious metals. The latest US existing home sales data surprised to the upside, while bond markets remained firm and largely unchanged. Looking at share markets in Asia
DXY has broken out to the upside: The Australian dollar was clubbed: Gold looks shaky: Oil too: Base metals remain mixed: Miners missed out: EM stocks too: Junk is still screeching: Stocks jumped back above 50DMAs: Westpac has the wrap: Event Wrap US August existing home sales posted a strong gain of +2.4%m/m to 6million (annualised), meeting expectations,
Only a decade late, the Lunatic RBA has discovered that unconventional monetary policy will lower the Australian dollar and aid recovery: see chart 7 espeically. Abstract The cash rate is currently at its effective lower bound and the Reserve Bank has put in place a suite of alternative monetary policy tools. This article uses the
The selloffs continue here in Asia following the rout on European markets overnight, with the late fill on Wall Street not extending throughout the risk complex as USD firms. Gold is not holding on any longer, ready to break below the $1900USD per ounce level as it fails to regain above previous support: In mainland
Via North West Strategy: After the early surge in the activity post the lifting of initial nationwide lockdowns, the Australian economic growth recovery has been mixed since the resurgence of cases and fresh lockdown in Victoria. However, the COVID situation has now improved in Victoria and case growth has slowed down, setting the stage for
It was a bath of blood on European stock markets overnight with Wall Street, precious metals and commodities then tumbling in response, then a late fill by the BTFD crowd saw some of this clawed back, but confidence is shattered nonetheless. Rising cases of COVID-19 in Europe and continued election and legislative chaos in the
DXY is stong again and has formed a head and shoulders bottom. EUR reflects: The Australian dollar was crushed: But EMs more: Gold’s bullish pennant broke down: Oil is in trouble as Libya returns: Base metals were crunched: Big miners drove into a pothole: EM stocks gapped lower: Junk is now screaming a warning for
Asian stock markets have begun the trading week in a mixed fashion, with Japanese markets closed as the risk complex takes a deep breath after Friday’s falls on Wall Street. Gold is still holding on, seemingly making another short term symmetrical triangle pattern on the four hourly chart, now just above the $1950USD per ounce
Wall Street took another tumble on Friday night, knocking it back to a six week low (although the NASDAQ is still up over 30% for the year) as a sea of red pervaded European bourses as well. Currencies were largely unmoved with secondary economic releases not having much of an effect, while oil futures held
A late surge in stock buying, pushed by Chinese shares has seen most Asian share markets recover from earlier losses, while currency markets are again firming against USD going into the end of the trading week. Gold is bouncing back after breaking its short term symmetrical triangle pattern on the four hourly chart, coming back
Another sea of red on overnight markets last night with Wall Street stumbling while other risk assets lifted higher. Bond yields lifted slightly while undollar assets like Aussie, Euro and oil prices gained although gold was the odd one out. US housing starts disappointed while the latest BOE meeting left all the settings unchanged, although
DXY was soft last night, EUR firm: The Australian dollar still looks strong across the DM board: Weirdly, EMs are rallying as risk diminishes: Gold couldn’t capitalise: Not sure what happened to WTI: Base metals are bifurcating: Miners are still solid: EM stocks too: Junk looks toppy: US yields are pancaked: US stocks have formed
By Chris Becker The latest US Federal Reserve meeting last night didn’t provide the punchbowl that risk markets were expecting, even though interest rates are going to at zero for years to come. Wall Street stumbled while Treasury bond yields lifted slightly and the USD firmed against most of the major currency pairs. The latest
DXY firmed last night and EUR fell: The Australian dollar was roughly flat: Gold was firm: Oil jumped: Junk is still fine: The US 10 year sold a bit: Stocks too a hit: Westpac has the data wrap: Event Wrap The FOMC retained its policy stance, as was widely expected, indicating it will keep rates at the
Markets inverted their risk profile today in Asia with Chinese stocks selling off as the Yuan surges against USD, Japanese markets tread water and local shares lift strongly in line with Wall Street overnight. Currency markets are poised for tonight’s Federal Reserve meet with gold coming back slightly as the symmetrical triangle on the
It’s just awful listening to the lunatically conservative RBA, via yesterday’s minutes: The US dollar had depreciated significantly against the currencies of other advanced economies over recent months, including the Australian dollar. In part, this reflected an unwinding of the earlier appreciation of the US dollar related to an episode of financial market volatility in March and
By Chris Becker Last night saw a continuation of the bounce on Wall Street, while a stronger than expected ZEW Survey still failed to ignite animal spirits across Europe, although better employment stats from the UK saw the FTSE move significantly higher. USD and bond markets were relatively unchanged as the latest US industrial production
Markets are quite mixed in Asia today despite the strong surge on Wall Street overnight and the positive Chinese data with only Chinese equities really putting any runs on the board. The USD is selling off in response, with currency markets accelerating against the “King” with gold surging to a new weekly high after it