There is an old trading adage which I subscribe to that says you should not overtrade. It’s the same with blogging about currencies – sometimes it is best to stay on the sidelines. So I’ve been quiet as there hasn’t been much to say on the Aussie this week. Really, it has just traded in a
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.
Last night the US Government hit its debt ceiling of US 14.3 TRILLION. Yes that’s trillion with a T and while there is little wonder that there is a debate about the raising of this ceiling in an environment where the sustainability of fiscal positions is being questioned all around the world. I wonder why
As most of us will have heard, we’re a blessed country entering a second mining boom that is starting up after the first one was doused by the GFC in 2007. This second boom will be longer and stronger than all before it, improving our terms of trade beyond anything this sunburnt country has experienced
It was a volatile weak for the Australian dollar, trading a broad range. At the close it has satisfied the next near term target in its downtrend that I had identified in yesterday’s Technical update and last week’s Wrap. That is, a daily close below 1.06 and to the extent the Aussie is closing lower (1.0573) as
It’s that time of year when the financial community’s attention is focussed on the Australian Government’s budget. But the Federal Budget is not the only game in town at the moment, companies all over Australia are also doing their sums as they try to work out their budgets for the next and subsequent finanical years.
This is how I reckon the currency guys might take the RBA’s no move announcement. It may be different to my fellow bloggers or the economists but then again currencies are traded by different people. The release of the RBA’s Board Meeting Communique had something in it for every one: A nod to the mining
As readers know the USD, as the other side of the AUD/USD coin, is one of my 5 key drivers of the Aussie as I have discussed before. So where it’s going and what it’s doing is a key to divining the future of the Australia dollar. Since the mid-1990’s, starting with Robert Rubin, US
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
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.
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
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
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
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,
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
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
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
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
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
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
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
There’s more argument today that the Australian dollar is now a global safe haven currency, which, I must admit, agitates my innate cringe gene. Let’s see if there is any evidence. First, the following graph is the last six months of futures movements for traditional safe havens by percentage: The $US is green, Japanese yen is
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
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