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.
Paging Wayne Byers, chairman of the Australian Prudential Regulatory Authority (APRA), Mr Byers to super hero reception, Australia is calling. Yes, this anonymous bureaucrat wears a blue lyrca suit and red cape under his drab clothes. He is a super hero in the making, if he seizes the moment. He is APRAMAN (h/t Pfh007)! Australia’s
Fresh from the WSJ, Standard & Poor’s Ratings has warned again (following the RBA) that the Australian budget could be downgraded in the event of an economic shock: Australia’s budget outlook has weakened sharply in the last six months as commodity prices have plunged, said S&P’s sovereign analyst Craig Michaels. …”we will still be looking to see ongoing restraint
It’s never a dull moment with the Kouk: With the market all but pricing in a 1.75 per cent cash rate, the 3 year bond yield hovering around 1.90 per cent, 10 year yields around 2.50 per cent and the Australian dollar US$0.78 or so, it is time to look for the next trading opportunity.
By Chris Becker Last night ended with scratch results in most overseas bourses as mixed economic prints, a very dovish set of FOMC minutes and no clear outcome of the Greek debt crisis kept risk holstered. Factory production in the US was weaker than expected as were housing starts which slid from its record high
By Chris Becker Back from a long weekend, US markets shrugged off European debt concerns and pushed risk higher with the S&P500 above 2100 points for the first time ever, while gold and silver were slammed as USD took a breather. First in Europe, the DAX continued its retracement in the cash market before rebounding
By Chris Becker Risk markets continued to focus on the Greek debt crisis, with talks last night at the Eurogroup meeting breaking up on plain speaking by the Greeks. Coupled with a holiday in the US, markets provided little opportunity apart from positioning. The DAX retraced around 0.4% off its new record high, setting up
by Chris Becker Friday the 13th was not a bad night after all on risk markets, with a surprisingly good German 4Q GDP lifting all boats amid continued optimism of a Greek debt resolution soon. The 1.6% yearly growth in German economy sent the DAX to a new record high, above 11000 points for the
By Chris Becker Risk markets are up, even though there has been no resolution from the Greek crisis and there was a poor December retail sales figure from the US, as oil rallied nearly 5% again, with news that a ceasefire in Ukraine is imminent probably the main cause. With the Germans conveniently forgetting some
By Chris Becker The emergency EuroGroup meeting last night on the Greek debt crisis kept most risk markets in limbo in the last 24 hours, with a possible resolution leaking out to the newswires this morning, sending some futures racing up. Coupled with no significant economic reports, the catalysts for action on the ground were thin,
I can’t bring you this news directly after I was cut from Charlie Aitken’s mailing list following some prophetic criticism of his disastrous oil and iron ore forecasts but at least he still appears to be reading MB. From the SMH: Both the Baltic Dry Index and RBA cash rate are below levels seen at
By Chris Becker Last night, speculation regarding a possible compromise on Greek debt sent stocks up and Greek bond yields down while oil and other commodities were smacked down again. With only one day left before the emergency EuroGroup meeting tomorrow time is running out but the optimists seem to be winning here. In Europe,
By Chris Becker Ructions around the continued “standoff” on Greek debt crisis continues to play out on risk markets, with European bourses falling swiftly, dragging down the US and Asia today. Greek bonds continued to be sold off with 10 year yields jumping above 10% again, while German bunds slipped to 0.35% in comparison. If ever there
By Chris Becker A surprisingly robust NFP print on Friday night from the US plus continued “standoff” on Greek debt did not imbibe confidence on global markets (read: did not pave way for cheap money to flood into funds), with most bourses down and only another solid day for oil providing action on the long
The good news in the US jobs report Friday night hammered bond markets globally, not least in the USofA itself where yields piled on huge gains, the 30 year yield rose 10 points or 4%, the 5 year yield rose 16 points or 13%, and the US 2 year rocketed 13 points or 25%! However, all
From Forexlive this morning and following the RBA’s otherworldly forecasts: Via eFX comes this: Change Your Thinking On AUD/USD; USD/JPY Chops – BofA Merrill (And more investment bank research and trade recommendations are available at eFX) Bank of America Merrill Lynch technical strategy team believes that it’s time to change your thinking on AUD/USD. “Evidence says
From “Mad” Adam Carr today: The Reserve Bank of Australia has lost control of monetary policy. This is a simple fact borne out by the RBA’s decision earlier this week to cut rates in response to similar moves by central banks elsewhere. …In following this path, however, policymakers have actually destroyed confidence and put the
By Chris Becker Another mixed night on macro markets as the argy bargy over the Greek debt crisis continued, weighing on European stocks, while the initial jobless claims preview to tonight’s non-farm payrolls came in better than expected. Another rebound in oil and a blowout in the US trade deficit has seen the USD weaken
By Chris Becker A very mixed night on macro markets with news of the ECB pushing back on Greece’s modest proposal as they hold to their bailout conditions, as Euro-wide and US services PMIs come in on expectations with no surprises save some good news for European retail sales. Oil sharply reversed course on much
Weeoo, weeoo, weeoo. The counter-contrarian signal generator know as The Pascometer is wailing that the Aussie dollar doesn’t need to fall, so get short with both hands (joking, sort of)! There it was again in the Reserve Bank governor’s brief statement on Tuesday: a selective use of dates and statistics to tell a story about the
Crikey, from Forexlive, will try get a hold this: Cuts Australian dollar 12-month forecast to 72 cents Says RBA to cut rates again in May, to 2% Oil drop may lower Australian earnings by $500bn to 2025 Lowers Australian GDP forecasts from 2016/18 $500 billion in earnings!
By Chris Becker The overcrowded long USD trade reversed overnight as US factory orders for December surprised on the downside, crude continued its expected rebound rally and risk markets joined in the fun. Yields rose across the board in 10 year bonds, except Greece where they fell another 1.3% to be below 10% for the
After yesterday’s shellacking post rate-cut, the Aussie rebounded strongly overnight in US dollar terms so I thought better make something of pre-emptive strike against zimmer-frame commentary that’ll no doubt tell us the cuts are having no effect. Here’s the Aussie versus developing market currencies: We’ve now got very solid downtrends in place against the US
By Chris Becker Risk rebounded last night with broad gains across most stock markets amid a solid, if under expectations ISM manufacturing print, and a retraction in consumer spending in December, though US as oil continued to make gains sending up energy stocks. In Europe, the Greek crisis was put aside (I’m loving the article in
By Chris Becker Last night saw a repositioning in commodity risk to further downside as the currency proxies were slammed alongside the actuals, namely oil, copper, gold and iron ore. This wasn’t a new move or anything unexpected (hyperbolic economists on twitter aside) but rather a stronger application of selling torque as technical levels were breached
Interest rates don’t affect the currency. The RBA has no control over the currency. Nobody can forecast currency movements. On the excuses ran for years and years of macro mismanagement and hollowing out of the local economy. Well, guess what, they were all bullshit and today we have the proof. As markets embrace imminent RBA
By Chris Becker A night of de-risking as the US FOMC Meeting produced a not wanted, but warranted “patient wait and see” mode on interest rates and further easing, which did not go down well with US stocks. The S&P500 broke through support on the four hourly charts and on the futures is below 2000
From Crispin Odey, the $12 billion hedge fund manager, and his latest newsletter: The themes I have been outlining since the second quarter of 2014 are now establishing themselves: A faltering Chinese economy with growth ultimately slowing down to 3%. A hard landing for those countries plugged into China’s growth – especially Australia, South Africa
Brace for this post. How low will the Australian dollar go? There are limitless factors as always in forex forecasting but the MB five drivers model of value is as solid a method as any to make your punt. Those five drivers are: interest rate differentials; global and Australian growth (more recently this has become
Back to the 70s as markets price for a US dollar bull and RBA action:
From ANZ: AUD IS SPENDING ITS FINAL DAYS ABOVE 80 CENTS • Central banks are surprising markets on a more consistent basis — with the Bank of Canada (BoC) the latest to cut rates. • The BoC decision has relevant parallels to Australia — namely, a commodity-centric economy with growth slightly below-trend and an inflation pulse that is providing space
