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.


Australian Dollar Weekly Wrap

Another stellar week for the AUD, if you are a bull or long, and another new post float high and weekly close at 1.0738. The combination of a weak USD after the warning by Standard and Poors about the future of the United States AAA rating combined with solid terms of trade data and a


Will the RBA step in front of the train?

I’ve raged against the fact that the AUD is hollowing out our import competing industries and our non-mining exports but today, as the AUD careens towards 1.10, I want to focus on whether the RBA is going to do anything about it.   Just now, the dollar is being buoyed by two major themes. The


Australian dollar beloved by all

Yesterday I wrote that the Aussie was the Cinderella of the ugly sister currency contest and posed the question where in the world would you invest at the moment? This morning a Bloomberg story  highlights just this. Importantly it suggests ongoing buying support for the Aussie regardless of whether we are in a risk on, risk off or neutral market.


Australian dollar on support

With all the hoopla about the negative ratings watch for the US, the price action for the AUD/USD over the past day or so is instructive. Back on Saturday, when I did the weekly update for the Aussie I said that  “when I look at correlated markets like equities I think their momentum is waning


Australian dollar weekly wrap

The Aussie’s price action once again speaks of underlying demand and overall strength even if it wasn’t able to eclipse or close above last week’s highs. Opening the week near the highs, the AUD traded down to a low a little below 1.04 on the back of what was widely reported to be a bit


Australian dollar pull back

Market commentary is always slanted towards prices moving higher (leaving interest rates aside) on the understanding that up is good and down is bad. Makes sense, most people play it from the long not the short side. So last night’s price falls across a broad range of equities and commodities has investors and traders on


Aussie dollar weekly wrap

A big week for the Australian dollar ended with it for the first time in the modern era above 1.05. The actual New York close of 1.0564 is more than 2.5 cents above the low for the week registered on Tuesday. Up until the employment figures on  Thursday, the Aussie’s strength reflected a weak USD,


Hollowing out

Washington Consensus and Dutch Disease – yesterday saw an interesting convergence of these two ideas which are vitally important to the debate, or lack thereof about the structure of the Australian economy and the changes being wrought by mining and the high Australian dollar. Briefly, the Washington Consensus was the set of “rules” which replaced


Risks to the Aussie

The question I asked last week about Chinese growth and iron ore demand seems to have been answered for now. That question was the following: Not only has the market not priced a significant, if cyclical, China slowdown, if it comes, Chinese steel makers may very well enter an inventory cycle that liquidates some portion


The Aussie is running

I’m out of the office so I’ll keep this one brief but I just wanted to touch on the AUD/USD and the new highs it made above 1.03 overnight. Indeed as I write it is sitting at 1.0320 and looking like it wants to reach for the 1.0375 region that one of my colleagues thought


Should the RBA sell the Aussie?

As readers know the AUD/USD exchange rate hit a new post float high of 1.0290 on Friday night and it seems that traders and investors just can’t get enough of what I used to call the “battler”. This non de plume was one that many of us in currency land used to call the Aussie


Dollar blowoff

From Business Day this morning: A rocketing Australian dollar could hit close to $US1.05 next month, with signs its record-breaking run is far from over. The dollar hit a record $US1.0294, its highest since its 1983 float, in New York trading early on Saturday morning, Sydney time. A weakening US dollar, stronger commodity prices, particularly


Two-up on the Aussie

Years of experience in financial markets has taught me never to crow to loudly on victories as Hubris is an always close stalker. But equally I’ve learnt not to despair to much if you get it wrong. That’s what stop losses are for. There are two sides to every trade and my selling sees someone


Australian dollar headfake

I haven’t blogged this week which I hope no one has thought was a result of the Aussie not falling as much as I hoped last week. Its simply been a case that I’m out of the office.  Indeed I wanted it lower because in the .94/.95 region against the USD I thought it would


Intervention and the AUD

AUD/JPY and USD/JPY are up sharply at present on the back of comments from Japanese Finance minister that G7 countries will intervene to support the Dollar (sell Yen). There is also talk they will buy stocks which is what the HKMA did during the Asian crisis. The New York Times just sent a release out


Risk is off, but China is still on

Houses and Holes is right on the AUD we need to be careful what we wish for. We do not want to be a reserve currency – already we are seeing the strength of the AUD reallocating resources around the economy. HH’s post on Dutch disease a week or two back highlighted this and it


Aussie bounce – technical?

As we blogged yesterday we finally saw a real risk off event which took the AUD with it. The generalised fear across the Asian region was tempered somewhat in northern Hemisphere trade and markets this morning seem a little calmer even if they are still on edge. I promised that if I saw moves or


Risk off event

Financial markets lack sentiment as shown by today’s price action. Japanese Prime Minister Nato Kan reignited the risk off rally today and send the Nikkei and AUD tumbling after discussing the rising fears of nuclear meltdown after a new fire at the Fukushima reactors. It is no understatement to say that this was the catalyst


Will Japan rout the Aussie?

Not surprisingly the markets in Japan are under pressure in the aftermath of the earthquake and the massive destruction. The Nikkei is down 5.14% as I write and USD/JPY has bounced off a low for the day of 80.60, no doubt on the back of some intervention from Japanese authorities. The moves in Japan and


The great Aussie battle

Is the AUD weak or strong? It’s hard to tell because it seems to find support above .9950, like it did Friday night, but can’t get through 1.02. This tight trading range has been in force for about 6 weeks now and has the bulls and the bears excited in equal measure each camp expecting


The Aussie and technicals

Technical analysis is the study of patterns of movements in price action of a market or asset as a predictive tool for the future movement of those prices. Technical analysis recognises that price volatility is greater than fundamental volatility and for me technical analysis is a really important tool in the armoury of a trader


Aussie dollar and oil

Last week we promised to have a look at the oil, USD and Aussie linkage to see what we garner for the future. Of particular note was the comment in the Lex article that sparked the original blog and one with which we don’t necessarily agree. That is that, Looking further back, the dollar’s epic


The Aussie and trade data

As you know,  your currency blogger reckons that on any time frame you can group the key drivers of the AUD into 5 categories or drivers. The difference is that depending on the time frame being looking at you need to change the subjective weighting you give each set of variables. Technicals are much more


The Aussie & petrodollars

The FT’s Lex column has an interesting take on why the USD has not benefited from the “risk aversion” trade. The other day I hypothesised that perhaps there just wasn’t that many big “risk” positions on in the past few months so there was no observable impact on the USD. But Lex reckons its about


Aussie set to rocket?

We have a market. That is we have now heard from the bullish camp on the AUD with Glenn Mumford’s article in today’s AFR representing quite a bullish outlook for the AUD which he reckons is going to 1.10 pretty soon. I’m expecting the local dollar to trend towards $1.10 over coming weeks…This next leg


China and the Aussie dollar

You have to love FX markets, well at least I do. They always keep you honest both in intellectual terms and also on your profit and loss account. Just when you think the AUD is going to go down support holds and it bounces a cent or so. That’s what we’ve seen so far this


Aussie anxiety

This blogger doesn’t like to crow because he has been around markets long enough to know that the Greek notion of Hubris is alive and well. But we wanted to highlighted a Bloomberg article out this morning which flows from yesterday’s blog and we hope will help readers understand that we are on the right


Aussie hanging by a thread

We don’t want to pre-empt our next blog on the relationship between the AUD and China but we thought there might be an opportunity to alert readers to the risk that the AUD is hanging by a thread up here in the 1.00/1.02 region against the USD. Already AUD/JPY has turned sharply and AUD/EUR, AUD/GBP


Commodities and the Aussie dollar

Unconventional Economist put up a piece on this Blog the other day on Commodities, China and the AUD after comments from one of the best forecasters in the business, A. Gary Shilling, that you should sell the AUD because China is going to have a hard landing and demand for our mining related exports would fall.