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.

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Cable flies on Scotland pike (UPDATE)

by Chris Becker What was that quote about “fighter pilots make movies, but bomber pilots make history”? It seems referenda may make good headlines, but its currency markets that move the real world. Last night’s independence vote for Scotland is looking set to be a “No” (or Nein Nein Nein, depending on your view!), according

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Will a falling AUD curb the population ponzi?

By Leith van Onselen Rob Burgess has written an interesting post today at Business Spectator, which contends that a falling Australian dollar would curb immigration into Australia by reducing the pay-off from earning Australian dollars and raising living costs: Australia has been a very attractive destination for skilled workers from around the world, including developed

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Goldman makes Australian dollar sense

While our dreadful leadership is busy talking up houses and fairies this morning at a Bloomie conference, Goldman has made more sense at the same gig, from Forexlive Philip Moffitt, head of fixed income for the Asia-Pacific region at Goldman Sachs Asset Management, speaking at the Bloomberg Summit in Sydney (earlier headline here). More now: Sees the

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Oil the next commodity domino?

The oil price is taking a shellacking today on the terrible Chinese data, down north of 1%: The weekly chart is already through key support and targeting $85: I was one that thought we would see consistent geo-political premium in prices as Iraq deteriorates. However BofAML has an intersting opposite take today: Islamic State could

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Goldman sees demand hitting commodity prices

If you want a clue as to why the Australian dollar is suddenly weak, here’s one from Goldies: Recent broad sell-off reflects increasing demand concerns Commodities have sold off across the complex over the past week, following a number of macroeconomic and “micro” commodity-specific events. In the main, it appears that demand concerns were the primary driver,

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Australian dollar resumes tumble

Just say no to yesterday’s crazy ABS jobs report is the market’s theme for the dollar this morning as it breached 91 cents overnight. Against developed market currencies we have a good sell off underway, though it’s not broken any trends beyond the US dollar (especially that weak-arse yen!): Against commodity currencies we are weakening

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Australian dollar technicals

A lot of focus on the AUDUSD today. Firstly I feel this move is both technically driven and also by further USD flows, although the poor Aussie consumer confidence print would be playing into the move. We’ve seen a break of the multi-month range (at 0.9203), with the 200-day MA subsequently breached – whether the

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Australian dollar break down

  It’s not exactly raging risk off but the Australian dollar has broken down anyway. Last night it breached the 92 cent level that’s been its base for six months: The proximate cause is a rampaging US dollar as a little taper tantrum creeps in However the yield spreads have, if anything gotten wider: There

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US jobs fail puts rocket under Australian dollar

The all important Bureau of Labour Statistics (BLS) US jobs report was out Friday and the much anticipated acceleration in employment failed to show: Total nonfarm payroll employment increased by 142,000 in August, and the unemployment rate was little changed at 6.1 percent, the U.S. Bureau of Labor Statistics reported today. …The change in total

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An attractive offer from the ANZ

Excerpted from Sovereign Man: If you’re looking around right now for a new bank account that pays a reasonable rate of return, ANZ bank has a hell of a deal for you: 0%! That’s right. ANZ is offering its depositors absolutely zero interest. Now, a bank paying 0% isn’t exactly abnormal in today’s banking environment. But what’s

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Nomura: Foreign flows to hit Australian dollar

From Nomura: After very strong growth in Q1, the Australian economy is entering a period of slightly below trend growth of between 2.5% and 3.0%. This means that RBA is likely to retain its neutral policy stance. Moreover, recent communications from RBA Gov Stevens highlighted the probable intention to not cut rates saying „cumulative movements in interest rates since

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Taper tantrum 2.0?

Last year’s spectacular “taper tantrum” in markets is something of a misnomer. It was an episode of “risk off” behavior driven in part by the Federal Reserve move to begin tapering quantitative easing (QE). US bond yields suddenly soared as higher interest rates became an expectation. That saw capital repatriated from emerging markets economies to the

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Australian dollar bounces as US bond yields sink (members)

The indomitable Australian dollar is running again on carry. The New York Fed released its Q2 Household Debt and Credit Report overnight and households returned to marginal deleveraging: Aggregate consumer debt was roughly flat in the 2nd quarter of 2014, showing a minor decrease of $18 billion. As of June 30, 2014, total consumer indebtedness was $11.63 trillion, down

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Bad news is…rock’n’roll thunder bid!

As long as it runs, it’s no less perverse. The bad news is good news market, that relies entirely upon failing economies to prosper, is back with a vengeance. Yesterday’s global data mix was awful. Chinese credit issuance collapsed. Japanese GDP collapsed. German business sentiment collapsed. Overnight, US retail sales didn’t grow at all. And

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When will the carry trade reverse?

A nice little video here explaining the risk reward calculations of the global carry trade in basic terms. The appearance of an HSBC guy along with book-ended HSBC ads might give you pause about the genesis of the story but it’s still a good snap-shot. The Australian dollar follows the ebbs and flows of the

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Should Australia tax the carry trade speculators?

Find above an interesting video from The Australian featuring John Abernethy from Clime Asset management. Abernethy argues that Australia should tax short-term speculative currency inflows – the so-called carry traders – in order to slow inflows and put downward pressure on the dollar. Such a move, he argues, would greatly assist the non-mining tradable economy

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Markets have boxed in the RBA for another cut (members)

The Australian dollar had a volatile night: The prime culprit was the US CPI which eased back from recent highs and showed even more weakness in the internals. From the Cleveland Fed (charts from Calculated Risk): According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.0% annualized rate) in