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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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

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Bill Evans: RBA jawboning to fail

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

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Memo to Glenn: You do the jawboning

The RBA carried its jawboning message on the high dollar to New York last via an interview with John Edwards at the WSJ. Find it below: Edwards argued weakly  that “currency looks a bit overvalued” but says that we “might have to wait till the Fed moves on the overnight rate”. He also noted that the

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BRICS give greenback the bird

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.

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US jobs rebound stalls Australian dollar

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

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Dad’s Army to the rescue on Australian dollar

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

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Currency wars boost your stocks

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

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Will the Australian dollar never fall?

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

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RBA has “lost” currency war

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

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Aussie dollar under pressure before Fed meeting

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

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Aussie cracks on RBA dovishness

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