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
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 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
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
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
It was a mixed night for the US economy. Second tier data was very good. The Philly Fed manufacturing gauge surged to 24 points, its highest since 2011 and the regional indexes are pointing to an accelerating ISM (charts from Calculated Risk): Also good was weekly unemployment claims which dropped to 302k, the lowest level
From Goldies today: We do not expect a collapse in global commodity prices. But we do anticipate substantial declines across a number of key commodities – primarily in metals and bulk commodities but also in energy – and we think the period of continued year-on-year price increases is behind us. Exhibit 11 shows our forecasts
From Bill Evans at Westpac today: The minutes of the Reserve Bank board meeting on July 1 provided a mild surprise by not “strengthening” any of the language around the Australia dollar compared to the June minutes. The key sentence was: “The exchange rate remained high by historical standards, particularly given the declines in key
From the BRICS Summit overnight comes currency swap lines, deeper trade integration, non-dollar exchange mechanisms and a $100 billion dollar competitor to the International Monetary Fund. That’s 3 billion people that just exited the US dollar reserve system when dealing with one another. Probably the most serious challenge to US dollar hegemony of our lifetimes.
I gave you the bulls this morning, whose arguments looked dubious. Here is the bear case for the Australian dollar from Society Generale: It seems odd, given that every economist of note accepts that globalisation and technology have changed the way labour markets work so much in recent years, that no-one has really changed their
More Aussie bulls from the AFR: DZ Bank, the most accurate at predicting the Aussie in the four quarters through June as measured by Bloomberg Rankings, is joined by third-ranked Citigroup in projecting the Aussie will end 2014 at US96¢ from US93.87¢ as of 5 pm Tuesday in Sydney. The median estimate of more than
The Australian dollar has opened weaker today and appears to be threatening last week’s lows already: The low last week was at $93.3 but as I wrote then, I don’t think that markets have fully absorbed the significance Captain Glenn’s speech. In it he declared openly for the first time that: But lest there be
You can forget about US dollar parity for the Australian dollar. In his speech and in the Q&A yesterday, Glenn Stevens made it quite clear that current levels of the dollar are far too high and the RBA’s patience runs out at 95 cents or below. Bizarrely, this has largely been ignored by the Australian
One of the primary drivers that holds the Australian dollar aloft when it should by rights be falling is the $US carry trade. As MB’s five drivers model of currency valuation shows, there is much more to it than that: sentiment, technicals, the $US itself, and relative growth prospects. But the yield spread actually captures
The mini reprieve for the Australian dollar that started with the tanking trade deficit yesterday (down to 94.6 again) continued overnight as the US ADP jobs report (a private sector report that leads the official report tonight) jumped to its highest level in two years: Private sector employment increased by 281,000 jobs from May to
Dad’s Army has arrived with its too-late-the-hero theatrics to save us from the rampant Australian dollar. Alan Kohler opines today on the long monetary hold: This extraordinary state of affairs rather belies the tranquil commentary in the Reserve Bank’s monetary policy statements, including yesterday’s. In fact the monthly bleat about the exchange rate after every meeting is beginning
Via FTAlphaville comes this splendid truth from Citi: One defining feature of JPY is its negative correlation with Japanese equities. The negative correlation intensified considerably in the wake of the BoJ aggressive QE in April 2013. Investors were buying Nikkei but selling JPY because of QE (Figure 1). Most recently, both Japanese growth and inflation
A few comments today reflect a growing skepticism that the sell-side (and MB) have got their expectations of a weakening Australian dollar wrong. And today the battler is looking like it wants to challenge its 2014 high: I’ll do a five drivers update tomorrow but here are a few points about why I remain comfortable that
The AFR has some quotes from Matt Sherwood, senior economist at Perpetual, that are of interest: “The RBA’s war against the Australian dollar — and its desire to get it lower — has been lost…Indeed, over the past 18 months the bank has been telling us that the Australian dollar is historically high and is at
The Japanese Ministry of Finance (MOF) released its International Transactions in Securities data for the week ended June 13 today and Mrs Watanabe is tearing it up in foreign bonds to the tune of Y 638.2B. Chart from ForexLive: It’s fair bet some of that is coming here and inflating ye-auld dollar.
by Chris Weston A quick look at the technicals on AUD/USD ahead of tonights FOMC meeting. Firstly, the pair failed to re-take the former uptrend on June 12 and is now reverting to the mean (20-day MA) after closing two standard devations from this average (or the top of the Bollinger band). This puts the
By Chris Becker The RBA minutes are out and you can feel the love returning. Although much of the discussion is unchanged, the sections on China and fiscal consolidation are more dour and the confidence in rebalancing is waning: The global data released over the past month suggested that the pace of growth in Australia’s