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.
It was a week where the Aussie was a little skatty, buffeted by the competing forces of a weak USD and the looming uptick in risk aversion. As the chart below shows over the week there was really much ado about nothing as it traded a very narrow range in the context of the past
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
The USD didn’t play ball this week. Just when it looked like assets in the so-called risk basket were pricing off weak data from the US, traders decided that a moribund euro was preferable to the USD and those of us who thought Aussie was headed for 1.0350 got to experience the joys of stop
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%
Just a quick update on what is happening in our timezone today which comes with the VERY BIG codicle that Asia often gets it wrong first up after a weekend where a bit of doom and gloom reigns. But we talked a couple of weeks ago about how the European troubles last week and the
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
I think the AUD/USD exchange rate has made a medium term top at 1.1013 which is associated with what appears to be a turn in the USD and other markets at present. Turning points are never easy times for markets as the previous bulls cling to their tendencies and the emerging bears are a bit
Last year the EUR got down under 1.20 and I was convinced it was going to its true value, in my opinion anyway of 1:1 with the USD. Nothing against Germany or even France for that matter but the bolted on Eurozone area to these and other “core” nations really does make the sum of the whole
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.
Those of you not heavily involved in currency markets probably wonder about their stability after a week where the Aussie made post float high at 1.1013 and then promptly fell to a low of 1.0537 before closing at 1.07. But that is life in currency land and it wasn’t just the Aussie that saw such
On Monday I posted a technical piece saying the the Australian Dollar had hit resistance and so far it appears that the 1.1014 level has proved to be the ceiling that I thought it was going to be. It was tested on two distinctly seperate occasions on Monday Sydney time and then again in New York
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
If I was forced to trade today and I could only bet on the next 3 cent move, I’d put my money on the Aussie seeing 1.07 before 1.13. This view is based on my view of the technicals, the fact the Aussie feels like a crowded trade and Bloomberg TV seems to want to
Another strong week for the bulls in the AUD with an overnight high of 1.0978 and a close just a few ticks lower. It was a week where a combination of factors contributed to the Aussie’s strength with the USD weakness we highlighted last week and then again in my post Thursday. So it
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
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
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
