FT Alphaville last night wrote the following: But the strength of the dollar is still a cause for concern, even, it seems, for the RBA. Following Tuesday’s decision to leave the official cash rate on hold at 3.5 per cent, it noted the exchange rate had “remained high, despite the observed decline in the terms of trade and
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.
From the AFR: Foreign central bank appetite could be adding up to US15¢ to the value of the Australian dollar according to one strategist, as the market awaits commentary from the Reserve Bank of Australia on the high dollar following its rates meeting on Tuesday. Morgan Stanley strategist Gerard Minack wrote in a note to
There are two points worth noting about Warwick McKibbin’s persistent call for the RBA to control the dollar in today’s AFR. The first and greater point is that: It is clear that it is better to take the appreciation of the real exchange rate caused by a commodities boom through a stronger currency rather than
Australia’s policy makers seem to have been hiding in the trenches while the global currency war is being fought around them. Although here at MB we have discussed the high dollar at length, only now that former RBA Board member Warwick McKibbin has suggested that direct intervention is justified by policy changes abroad, has the
Here’s something MB missed yesterday (as did the entire Australian press) and may in part have triggered the McKibbin story overnight. From Alphaville: SYDNEY-Officials within the foreign-exchange arm of China’s central bank recently met Australian regional governments to discuss buying their bonds, people familiar with the matter said. The securities – known as semi-government –
By David Llewellyn-Smith Thank heavens. Australia’s best free-thinking economist, Warwick McKibbin, has finally broken the Canberra consensus and urged the RBA to sell the dollar. From the AFR: Former Reserve Bank of Australia board member Warwick McKibbin is urging the central bank to intervene in currency markets to limit the strength of the dollar, suggesting
Is that a small dump in the Aussie on the PMI? Nah, just a general risk off move.
A few months ago I investigated the growing the divergence between a weak thermal coal price and strong iron ore as well as coking coal commodity markets. The divergence continues but the relative strength has reversed. Here are the overnight prices: The bounce from the recent lows for thermal coal is not yet convincing: Thermal
From the WSJ: Germany’s Bundesbank is expected to begin adding Australian dollar assets such as government bonds to its foreign reserve holdings before the end of September, bankers say. The decision, which follows a two-and-a-half year review by the Bundesbank, adds to a wave of central bank demand for Australian-dollar exposures that has swelled over
In more poor news, the AFR reports that: The Czech Republic central bank is buying Australian dollars for inclusion in its foreign exchange reserves. …According to one trader, the Czech National Bank has been buying Australian dollars in the 2012 calendar year of amounts that add up to between $US500 million and $US1 billion. Let’s
The great conundrum of FX markets over the past year or two has been the resilience of the Euro in the face of all the problems that have engulfed the Eurozone, seemingly threatening its very existence. We know that European banks have been repatriating money and we know that both legs of Chairman Bernanke’s quantitative easing
Find below a fascinating new note from Westpac’s Huw Mackay (Phat Dragon), who has a brain the size of a planet, on why the Australian dollar has shown continued resilience, even though, thankfully, he does not buy into the “safe haven” tripe: We principally highlight the economy’s improved external financing position (both in terms of scale
Last night’s price action in the euro and the US dollar suggested, quite rightly, that the market remains worried about Spain. Indeed the Spanish 10 year yield closed at 7.16% and the euro fell back from the Asian highs. The Australian dollar on the other hand has been holding in well and sits just below
You might be asking the question: how can the Australian dollar be back above parity after a night where Spanish and Italian yields blew out and only a couple of days before the Greek election? Anyone who tells you that this is because the Aussie dollar is a safe haven should faded quick smart. The
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
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 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