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.
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Find below a comment masquerading as a story from The Australian celebrating a Bundesbank plan to help German firms poach Australian industrial capacity (the crossed out parts are The Oz and the bold is what should have been written). GERMANY’S Bundesbank, one of the world’s most powerful central banks, is considering adding Australian dollar assets
When I did links this morning , I posted an article noting that US money continued to flow out of Europe last month. I also saw that the euro was back above 1.25 and the Aussie dollar was around 0.9950: Chart courtesy of AVAFX Mobile off my iPhone Given the European malaise and the potential catastrophic catalyst
Ben Bernanke stole the punch bowl for commodities and commodity currencies last night, which had rallied on the back of the Chniese rate cut and freeing up of deposit and lending rate controls. But with his usual equanimity, the Fed Chairman simply didn’t want to play ball and add more stimulus and markets were not happy
Stocks plunged more than 2 percent in the US on Friday as the release of a terribly low non-farm payrolls result of 69,000 jobs and an uptick in the unemployment rate that suggests that the US recovery is faltering. The Dow has been dragged into negative territory for the year now and the S&P has
May was a big month for me – I made some big calls which, as we enter June, I am even more convinced of. The first big call was the question of whether or not Australia might be facing a recession which I posed on May 4th. Here is a link to the full piece but this
As I write the Australian dollar is up 0.62% to 0.9819 after making a low last week around 0.9690. Indeed the Aussie has, ever so slightly, broken through the top of the hourly downtrend channel it has been in since the run toward 1.05 in late April. Now it’s only 6.30 on a Monday morning,
I am not walking away from my call on May 9th that the Australian dollar is going to head toward 90 cents but there seems something wrong with today’s very aggressive selling, which has knocked the Aussie all the way to a low of 0.9742. In part, it is broad based USD strength in Asian trade today:
There has been much written over the past year or more about Australia’s status as a safe haven. People point to the fact that the Australian dollar climbed to the dizzying height of 1.1080 to the USD, against a post float average around 74 cents, and the fact that it has held there for for
God knows why I’m indulging in the idiotic MSM sport of parity watching but there she goes!
As a mate of mine just said to me – the Aussie dollar looks like a lead canoe this morning and my thoughts on it heading below parity remain undiminished. Here is the chart of how it looks at present and nothing in the fundamental outlook has changed from the piece I wrote the other
The confluence of events over the past week has taken the wind from the Australian dollar’s sails and contributed to the drop through support in a manner that suggests this move has further to run. Indeed I have been calling it back below parity for some time now – we just needed support to break
The Australian dollar is doing exceptionally well all things considered – it’s a fair to say that with the weakening Australian profile that prompted the RBA to cut rates this week we could have probably expected that the Aussie would at least retest the very important support zone at 1.0220/40. Tonight the key short term region is
The Australian dollar rallied strongly over the course of the last week. Indeed over the past few weeks we have had the Aussie test and hold important Fibonacci support in the 1.0220/40 region a couple of times and closed the week approaching 1.05. So the question I ask myself is this another head fake or is the
BULA! First post for a little while as I’ve been in Fiji with the family during the New South Wales school holidays and even though Mother Nature hit the islands hard, the Fijians have bounced back strongly and are at their convivial best. The infrastructure still needs some work and hopefully the Australian government is
How bearish on the Australian dollar, how bearish on equities, how bullish on bonds? It’s an interesting question isn’t it? If it were May it would be easy – sell and go away as the old adage says. But April? I’d posit, and have been for a while now, that the broader market rally in
The Aussie has spent the last 24 hours working off the extreme oversold position on the hourly charts but it continues to remain vulnerable and I remain committed to my view it is going below parity as articulated recently when I said: I’m going to make a big call and say that on the basis
Well the Chinese PMI bounce faded quickly for the Australian dollar didn’t it. As I said on Sunday/Monday: I am looking forward to the next few days trade before Easter because it will tell us a lot about where the market is positioned and what it believes. So we had a brief rally earlier this week but the
I’m writing this Sunday night Newcastle time (GMT +10) and I’m guessing that tomorrow morning’s open is going to be a pretty good one for the Aussie Dollar and for risk assets. The reason for this is that the Chinese data out over the weekend was not as bad as the Flash Chinese PMI suggested
My piece yesterday elicited some interesting direct feedback from readers and mates in the markets via email. I declared myself a bear on the Aussie Dollar in a medium term sense – expecting it to trade under parity at some point as opposed to breaking back higher. The primary discussion was two fold: The first point of
Up down and around. The Australian dollar failed at resistance this week and is now, once again, approaching support. I’m going to make a big call and say that on the basis of my fundamental economic view, and particularly on the basis of my technical view, the Australian dollar is going to head under parity, probably toward
The Aussie Dollar had a bad week then a great bounce last week. It managed to close above the important support zone in the 1.0370/1.04 region we identified. It sits this morning comfortably atop 1.05 and more than 2 cents above the lows from last week. Tough times for some traders no doubt and one
Not a great night if you are bullish on stocks and the commodity complex, because commodity currencies like the AUD which were already off a tad on the back of the flash Chinese PMI after lunch yesterday, and then were put under more pressure from similar indexes in Europe. On the markets Bloomberg reported: March
Trading Day covers the relevant moves in the Asian stock, commodity, debt and currency markets including a review of the top 8 Australian stocks – the top 4 miners and banks, highlighting trading ideas and investment opportunities. Remember to read “Trading Week“, published each Saturday morning, to put these events and ideas in context. Well
Nothing like a juicy China story, well actually a bad one, to get the Australian dollar moving. From the NAB’s morning note: Equity markets were weaker overnight after mixed US housing data and also concerns about the strength of the Chinese economy. Both BHP and Rio Tinto warned that Chinese demand for iron ore is
It is undeniable that the Australian dollar has had a great bounce off the support we highlighted last week. While I thought the Australian dollar might have fallen into the 1.0378/1.0407 zone, it got close enough that over the past few days people are becoming bullish once again. Lets first look at last weeks chart and then
The Aussie is doing as I’d expected at present and continuing to struggle, hitting what I think is a 2 month low overnight at 1.0427 against the USD. The wash off the oversold hourly move a couple of days ago pulled up exactly where it should have just below 1.0560/75 and last night saw it under
It’s time to get on my high horse again about the Australian economy and what is not being done by policy makers and the RBA. I live in the Hunter, having worked until recently as the Treasurer of the dominant Financial Institution in the region, in addition to spending countless hours, days and weeks getting
Regular readers know I have been leery of this rally for some time, for no other reason that after a stellar run like we have seen recently, markets usually need a breather. Sometimes its a period of going nowhere, sideways and or a trading range – what I call a “time consolidation” – and other
The Australian dollar has fought back pretty well this week given the domestic economic data. In truth, though, it probably didn’t fight at all – it’s just a boat that has been lifted by the tide as Greece nears a deal, and default is forestalled once more. But, we could have expected the dollar to
Let me ask you a question. Do you care if the Aussie Dollar heads toward 1.20 or 1.25 in the next 12 to 18 months, as Australia’s alternative Treasurer Joe Hockey said the other day? In the Sydney Morning Herald Mr Hockey was quoted as saying: ‘…it is not inconceivable for the Australian dollar to reach
