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.

2

ECB lights a rocket under the Australian dollar

From Nomura: For global investors, once again the high term rate structure and strong credit ratings of markets like Australia and New Zealand should appear attractive to global money. Significantly too, given Japanese lifers appear to be lowering their hedge ratio for foreign bonds even further, the potential for an acceleration of flows into the

55

Australian dollar rips as ECB prints

Well, I hope Luci Ellis is happy with her stick figures because that’s all that stands between a grossly over-valued Australian dollar and the economy after the ECB joined the global currency war. From the FT: The European Central Bank lobbed in everything it could – bar quantitative easing –- to counter the threat of

1

Can APRA tighten the screw?

Nomura asks today if APRA can tighten the screws on the banks: The draft report from APRA released earlier this week is a timely reminder for banks, that lending standards must be maintained, particularly given the rise in house prices in the last year. Moreover, in light of annual wage growth sitting at record lows of 2.6%

27

Kyle Bass says short Australia

From Advisor Perspectives: China’s economy isn’t just slowing down, according to Bass: It’ contracting. While China’s published rates for annual growth are still positive, Bass said the nation’s economic growth was negative from the fourth quarter of 2013 to the first quarter of 2014. That is a result of excessive government spending on unproductive sectors

6

Goldman sees Aussie dollar falls ahead

By Leith van Onselen Goldman Sachs is out with a new report forecasting a fall in the Australian Dollar to around $US0.85 over the coming year on account of the weakening economy, ongoing falls in the terms-of-trade, and a pick-up in US growth: Relative growth dynamics between Australia and the US appear to be shifting

1

Australian dollar technicals still bearish

From Credit Suisse: AUDUSD continues to threaten a top below .9202. AUDUSD held key support at .9205/02 – the April/May low – and staged a bounce. However, with the market still trading below the 21-day average at .9308, the immediate risk remains seen as lower. Our bearish bias leans towards aretest of key support at

6

RBA: Changing CAD to hit dollar

Guy Debelle is on the hustings today giving a speech about why changing capital flows will bring down the dollar. It’s too long to post but has some great charts. Here’s the gist: Given that changes in gross inflows to the banking, resources and government sectors have had a significant influence on changes in the

24

Australian dollar looks vulnerable

Last night the Australian dollar fell to it’s lowest point in two weeks: The falls were’t large but they were broad, impressively so on the crosses: That’s a hint that the iron ore and China weakness we’re seeing is finally undermining the currency. Aside from the structural reasons that we’ve often discussed for why the

20

RBA dumb on Australian dollar

David Bassanese takes up the Australian dollar baton today and does a good job of it: The resilience of the Australian dollar in recent months has been surprising, particularly given export commodity prices have resumed their slide. Only more surprising is the fact that the Reserve Bank of Australia has gone relatively quiet on the jawboning

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Australian dollar pushes 94 cents

The Aussie if flying this afternoon, at a four week high, not on the Budget, but building expectations of European QE after the WSJ published this today: Germany’s central bank is willing to back an array of stimulus measures by the European Central Bank next month if needed to fight unacceptably low inflation, underscoring the

23

NAB trader, ABS analyst caught in data scam

Over the weekend this story came to light: In one of the most serious insider trading cases in the nation’s history, the Australian Federal Police allege 26-year-old Lukas Kamay, an employee with National Australia Bank, offered up to $60,000 to 24-year-old ABS ­analyst Christopher Hill as a bribe to provide market-sensitive data before publication. Mr

0

Markets’ unearthly calm

BofAML noted today that forex volatility has fallen again to record lows: The persistent drop in rates and FX vols has been the most prominent market trend since the Fed tapering scare last summer. In most cases, realized volatility is even lower than implied. Last time vols were so low, East Asia, Russia or the

2

Australia dollar tests the downside

From Credit Suisse: Extension below .9253/51 should keep the bias lower to test early April low at .9205 next. AUDUSD has bounced initially at price support at .9253. Resistance at .9302 needs to cap keep the immediate biaslower for a clear break of .9253 to challenge the .9205 early April low next. While this should

3

CSJ: Yuan depreciation to protect against QE

China Securities Journal editorial via ForexLive: Recent yuan depreciation will provide a cushion and leave room for future increases should China face intensive capital inflows again if both Europe and Japan expand their quantitative easing programs. Said the Chinese economy can’t cope with any more sharp appreciation because of weak exports so depreciation provides a

6

Australian dollar timbeeeer!

The Aussie is still falling now, down a cent on the day: This looks to me a pretty decent move in the making. After all, if there’s no inflation then there’s no expanded carry coming. On the downside, there are few serious supports before 92 cents: It would probably take more bad news or a

28

Japanese currency war to go nuclear

From the AFR: Japan’s $1.26 trillion Government Pension and Investment Fund this week announced changes to its investment committee that would fast-track plans to shift money out of Japanese government bonds (JGBs) into equities and foreign bonds. …GPIF, which is roughly equal in value to Australia’s institutionally managed superannuation assets, holds more than half its

14

McKibbin: Australian dollar to the moon!

From the AFR: Empirically, the Australian currency tends to weaken when commodity prices fall or when domestic interest rates fall relative to those in the United States. It is reasonable to expect the fall in commodity prices since 2011 would weaken the Australian dollar. Similarly the announcement of tapering or an end of quantitative easing