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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Hedgies pull down Australian dollar shorts

From the SMH blog: Investors are scampering to unwind wagers on a decline in Australia’s dollar as a pickup in the economy stokes speculation that the central bank will start to raise interest rates next year. Hedge funds and other large speculators cut so-called net shorts by 25,643 contracts to 15,370 contracts in the week ended March 18, the second biggest reduction

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One last drink for the Australian dollar!

Last night the Australian dollar broke out as expected and is flying towards 92 cents: The longer term chart shows the key levels: From locked Business Spectator: The Australian dollar has struck a fresh 2014 high overnight as Bank of America Merrill Lynch analysts issued an upbeat near-term forecast for the currency. …”While we are

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The Australian dollar wrecking ball is swinging

The Australian dollar wrecking ball is swinging. The technicals are screaming a looming breakout. We’ve got a head and shoulders bottom in place and an ascending triangle. Last night it spiked again, butting up against the 91.49 resistance level and it’s next step will the December high of 92. After that, technically at least, it’s

1

Chinese yuan rockets into carry traders

The Chinese yuan has spiked again within in its new 2% fixing band, and how: A year’s worth of depreciation now gone. Over the longer term the move is taking on material dimensions: Remember that the 6.20 levels is seen as a tipping point for more selling. From Goldman’s report on the commodity scam unwind

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Australian dollar charges on whatever

Yes, it’s back, the indomitable Australian dollar, safe harbour (not haven) interest rate harbinger and play thing of global speculators. It’s broken out and is running. From Credit Suisse: AUDUSD has rallied back towards the top of the current range, and a clear move above .9105 should open up a retest of the key resistance

11

Australian dollar flies on…whatever!

The Australian dollar “five drivers” valuation model is worth revisiting today given the price action is looking quite bullish. The five drivers are: interest rate differentials; global and Australian growth (more recently this has become more nuanced for the Aussie to be more about Chinese growth); investor sentiment and technicals; and the US dollar For

13

Goldman: Australian dollar headed to 80 cents

From the excellent Tim Toohey at Goldman Sachs: “Our bearish Australian dollar forecast is underpinned by expectations that US data weakness is transitory, headwinds to Australian growth are intensifying, the next phase in the decline in the terms of trade has commenced, and capital flows are turning less supportive”. “Geopolitical risks and ongoing concerns over the impact of tightening Chinese financial conditions together risk a more

4

Australian dollar breaks out as US sags

Last night the Australian dollar launched above the 91 cent resistance mark and is in free air to fly off its inverted head and shoulders bottom: The proximate trigger was a sagging US dollar which was down half percent and break support: This also sent gold back to $1350. On the surface,  that had noting to

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Australian dollar triggers points for RBA jawbone

From Annette Beacher at TD, here are the RBA jawbone trigger points based on analysis of RBA minutes since August: $US0.80-85—is ‘preferable’ and a ‘fair deal’ $US0.85-88—doesn’t draw comment $US0.89-90—the AUD is ‘at a high level’ $US0.91-95—the AUD is ‘uncomfortably high’ “Failure to comment is now a trigger to rally, a situation that is likely to be

4

MS: Australian dollar “structurally weak”

From Morgan Stanley: We believe that AUD will be a structurally weak currency over the medium term. Indeed, there are big changes currently occurring in China; not only is the government attempting to rein in lending and prevent excessive hot money inflows, but it is also moving towards establishing a sustainable growth model that is

1

Australian dollar five drivers risk upside

Regular readers will recall that MB uses a “five drivers” model of Australian dollar valuation.  They are: interest rate differentials; global and Australian growth (more recently this has become more nuanced for the Aussie to be more about Chinese growth); investor sentiment and technicals; and the US dollar For the first,my view remains that there

7

Return of the Australian dollar jawbone?

A few keener observers than I have noted that the RBA did include some more dovish rhetoric around the dollar in its statement today. The return of the phrase “historically high” is a little shot across the trader’s bows and an implicit acknowledgement that it screwed up royally at the last meeting. The Aussie has

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Does Ukraine matter to markets?

Markets are ruthless. That’s why they’re (sometimes!) efficient. I do not expect a long or difficult period of adjustment to the emerging reality of Ukraine’s situation. Yes, overnight gold jumped a couple of percent to within spitting distance of another technical breakout: But I don’t buy it. In fact, I’d consider fading it. In the

13

Australian Guv’ surveilling bitcoin menace

From CoinDesk: The Australian government is keeping a close eye on bitcoin, but not on the regulatory front. Rather, it is tracking every conversion from bitcoin intoAustralian dollars, and vice-versa. The government agency doing the snooping is the Australian Transaction Reports and Analysis Centre (Austrac). The centre is tasked with countering money laundering and terrorist

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RBA king hits self as Australian dollar soars

Another warm congratulations to the RBA this morning from BofAML: AUD/$ is set to resume its bull trend. The almost 2wk old contracting range/Triangle is drawing to a close. The impulsive gain from the 0.8658 Jan 24 low says upside targets are seen to the confluence of resistance between 0.9269/0.9338. Further supportive of the bullish view

7

Rise of the forex machines

From Bloomie: A widening probe of the foreign-exchange market is roiling an industry already under pressure to reduce costs as computer platforms displace human traders. Electronic dealing, which accounted for 66 percent of all currency transactions in 2013 and 20 percent in 2001, will increase to 76 percent within five years, according to Aite Group