Boy, do we have a market in interest rates. From Bloomberg: Australia’s central bank will increase interest rates three times in the coming year as a mining boom boosts wages and helps the economy recover from natural disasters, a Deloitte Access Economics report showed. High resource prices and strong demand will boost Australian incomes and there
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.
Interesting week for the Aussie – finally breaking out through the top of the last couple of month’s range on the back of hopes for a European resolution as we discussed in yesterday’s piece. The outlook could be turning quite positive for the Aussie if we end up with a benign market environement like the
Today sees the release of the RBA minutes from this month’s Board meeting and there is a really strong chance that shortly after their release at 11.30 (EDIT previously I wrote 2.30pm) rates are a little higher than where they are this morning. Yesterday I was talking to an old colleague about the rally in interest
Another week of the Aussie dancing on the spot as it traded inside the range once again. Excuses abound for Aussie selling but it continues to hold in relatively well all things considered. We had a good chat in the comments section after yesterday’s piece on the tussles between the bulls and bears in the Aussie.
A couple of competing stories in the press this morning highlight one of the reasons that the AUD/USD rate has been stuck in a range for some time now. In The Australian this morning we have the headline “China risk jangles nerves on high dollar” while over at the SMH we have “As might dragon
I haven’t posted much trading style stuff recently as the Aussie has been trading a range and I’ve been away from the desk often on business but for those with a trading bent today offers a potential opportunity. As you can see from the chart above last weeks move from just below 1.04 (range bottom)
We haven’t seen a real risk off event yet as most people seem still to be trading as if there is going to be a resolution to the Greek crisis and also, I think, because all the recent volatility has pushed people to the sidelines. So the Aussie has actually been performing superbly all things
News in The Australian this morning that the Russians are buying Aussie Dollars is just another example of the kinds of forces that are at work as a result of the rerating of Australia and our currency. From The Australian: The Russian Central Bank will pour up to $US5 billion ($4.7bn) into the Australian dollar
The Aussie and the markets performance this week has actually been very constructive for a move higher if Greece ever gets sorted. There is enough pressure on politicians to get their act together and we had German Chancellor merkel backing away from a bail in of investors overnight which gave some hope that a rabbit
I hold a strong view that the instability that we have been seeing over the past few months has in many markets pushed longer term speculative capital to the sides and left the markets to trade on the whim of the short term guys and market news. How else can you explain the lack of
Over the past 8 trading days the Aussie has essentially traded a 1.0590-1.0770 range as the competiting forces in currency land played out. Friday’s spike after non-farm payrolls on the back of the euro’s bounce has not been sustained and as I write the Aussie has bounced off the bottom of the range overnight and
We have discussed the possibility that the Aussie has been re-rated by international investors and traders a few times here on Macro. We’ll won’t really know if this is true until the next big bout of market instability, but there is evidence that it is the case among long term holders such as central banks
I haven’t posted on the AUD this week largely because nothing is happening as it trades within the recent range. Certainly the downside looks more protected than its did for the past few weeks but I’ve been watching it all week wondering why it is so weak? You’re probably wondering how I can say that as
The ABS just released retail sales data for April and the outcome of +1.1% was way beyond market expectations of a rise of 0.4% with last month’s fall of 0.5% being revised to only -0.3%. These are unequivocally strong and unexpected numbers and will complicate the outlook for the market, which doesn’t think the RBA is
Just a quick update on our beloved Aussie and markets in Asia generally. Houses and Holes prescient headline on links this morning that last night was a dead cat bounce is proving correct. As I write my Bloomberg terminal is telling me: AUD/USD is sitting at 1.0477, down 0.78% Dow and S&P Futures down 0.65%
After a tumultuous two weeks and an omnious close last Saturday morning the Aussie settled down to trade a 2 cent range this week. That’s not to say that traders didn’t test out the support at 1.05 we have identified previously. But having found it solid, they turned the other way, making a high last
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
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