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 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
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
Taper tantrum 2.0 is go and it is aimed straight at Australia. As I write the dollar has been crushed 1.5% to 89.5 cents. Awesome. We are not alone. The US dollar is triumphant, roaring towards a 5 year high: Gold is sinking towards a retest of its post-GFC low: All emerging market currencies are
A throwaway line yesterday by Gary Morgan piqued my interest: The decline in ANZ-Roy Morgan Consumer Confidence this week (111.3, down 2.0pts) comes after a steep fall in the Australian Dollar last week – down by more than 3c to under 90 US cents although the Australian Dollar has now recovered slightly (today at 90.38
From Credit Suisse: As we highlighted way back at the end of July – Lift-off for 5yr US Yields – we have viewed the 5yr US as pivotal, as we believe a break here can act as the lead indicator for a more broad-based sell-off for US bonds. Although we were clearly too early at
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
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
A quick heads -up for the kind of trade we might see today on China’s terrible weekend data. The Aussie opened right on 90 cents and has failed to bounce meaningfully:
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,
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
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
It’s shaping as a bit of correction now, firmly below 92 cent support: Still looks quit iron ore focused, with Aussie and Brazil leading the way 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
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
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
Oh yeh, from the ECB, via the FT: Mario Draghi startled markets on Thursday cutting interest rates to a record low and pledging to buy hundreds of billions of euros of private sector bonds in a dramatic move to save the eurozone from economic stagnation. The euro fell to its lowest level in over a
From Westpac via the AFR: Investor demand for yield will keep the Australian dollar at or above current levels even after the US Federal Reserve starts tightening monetary policy, according to a contrarian view from Westpac. Bank economist Robert Rennie says according to a fair value model based on export commodity prices, the spread between
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
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
No doubt the Pasconomical RBA will today be celebrating a little move down in the Aussie as the US warms up to tightening next year. A job well done! Only one problem, the Australian dollar is falling FAR LESS SWIFTLY that any of our competitor countries. In terms of commodity producers, here’s the USD versus
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
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
The FT has a cute piece on the kiwi: Speculation that New Zealand’s central bank will reverse its strategy of raising interest rates is clipping the kiwi’s wings. The New Zealand dollar has fallen 0.5 per cent against the US dollar, to now buy 84.2 US cents. This followed data that suggested the nation’s property
Yes, according to “Mad” Adam Carr: If the Reserve Bank of Australia wants a lower currency, then the smartest thing it could do — right now — is hike rates. …take a look at New Zealand’s experience. The Reserve Bank of New Zealand has hiked rates four times in four months — a full percentage
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
Last night’s market action saw risk roar back to life. Stocks fell the better part of 2% in the US and the Australian dollar fell into the high 92s: The US dollar broke out of a one year trading range: Gold was dumped 1% but US bonds were flat at the long end but were
The US released Q2 GDP last night and the news was good (charts from ZH): Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 4.0 percent in the second quarter of 2014, according to the “advance” estimate
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
There’s not much one can say about the Australian dollar today except that it very clearly wants to go higher. Here’s the one year daily chart with its raging ascending triangle: It’s disastrous for the economy, for the Budget, for competitiveness, and to be hollowing out tradable sectors to make room for nothing but an
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
