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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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

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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

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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

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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

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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

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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

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Hockey angered by hawkish RBA

From the AFR: The Reserve Bank of Australia’s move to a “neutral bias” on monetary policy has angered the Abbott government, which believes any upward pressure on the dollar makes economic management in the next two to three years more difficult. The central bank has been informed directly of Treasurer Joe Hockey’s displeasure. The Reserve

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Japanese fund to buy Australian dollars

From Bloomie: Japan’s second-biggest bond fund is looking to buy the Australian dollar on dips, predicting a slowdown in China won’t derail the global recovery…Kokusai Asset Management Co. had 1 percent of its Global Sovereign Open Fund invested in Aussie-denominated assets on April 10, down from 4.5 percent at the end of September, data on

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Which gold standard central bank will break first?

The ECB and RBA are the two central banks which need the Fed to hike sooner, thus in turn weakening AUD/USD and EUR/USD. However last week we saw a massive re-pricing of Fed expectations, with Dec fed fund futures down 11bp to 66bp and this in turn pushed USD bulls away…recall the Feds median expectation

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Australian dollar speculators get long

From NAB this morning via the SMH blog comes a chart of last week’s Commitment of Traders report on the Aussie showing that speculators have shifted to net long, from -4.900 to 3300: As I’ve said before, it’s the large and small speculators that control the market. With shorts largely washed out it’ll be hard

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Sydney to become yuan trading hub?

From the AFR: Sydney’s status as the next ­official yuan trading hub could help Australia tap the vast pool of ­Chinese savings to fund ­infrastructure. Prime Minister Tony Abbott, who has badged himself the infrastructure leader, is close to securing agreement on a trading hub that his Treasury has been negotiating for six months. “It is

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Expect RBA dollar jawboning

By Leith van Onselen Today’s better than expected employment data has put a rocket under the Australian dollar, which earlier today broke through $US0.94 for the first time in 2014. According to UBS bond strategist, Matt Johnson, the Aussie dollar is now around 6% overvalued according to the RBA’s own model, and will eventually have

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Is the yuan tearing down the US dollar?

So say the South China Morning Post: At least 40 central banks have invested in the yuan and several others are preparing to do so, putting the mainland currency on the path to reserve status even before full convertibility, Standard Chartered said. Twenty-three countries have publicly declared their holdings in yuan, in either the onshore

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Australian dollar pops 93 cents on US jobs

The US jobs report was out Friday night and was decent but not cigar so far as markets were concerned. The headline number of 192k missed expectations of 200k only slightly but clearly markets were expecting better and sold aggressively. Given the winter softness I’m not sure why. Here are the charts from Calculated Risk:

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Mrs Watanabe piles into Australian dollars

From RBC Capital Markets: AUD (and NZD) have been the two best-performing G10 currencies  in the past month. Japanese retail investor trends go a long way toward explaining the outperformance. Over the past several years, AUD had fallen out of favour as an issuance currency. In 2013, AUD denominated uridashis represented just 9.2% of total

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Why isn’t the ECB chopping rates?

Cross-posted from Sober Look: The Eurozone’s unemployment rate is at 12% and holding while the area’s youth unemployment is at staggering 24%. Private lending is still contracting (see post) and disinflationary pressures persist even within the “core” states (see chart). The price stability situation in the “periphery” is starting to look outright deflationary – see chart.

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Bye, bye bitcoin

The bitcoin bubble is bursting and I would not be at all surprised if it disappears entirely, nor would I grieve its loss: Yves Smith at Naked Capitalism captures my feelings nicely: Bitcoin is getting hammered today. The Caixin website says it has seen the draft of a Chinese central bank ruling that would require banks and

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Aussie, Aussie, Aussie dollar!

The Australian dollar is flying towards 93 cents, this time on, well, nothing: No news is now an Aussie spike driver! Must have hits some stops and driven short covering. Meanwhile, according to Citi, exporters are choking. From the SMH blog: Citi and East Partners latest quarterly trade and finance index finds that traders started feeling

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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