Unusual times call for unusual measures and the move by the Swiss National Bank (SNB) to fix the rate of the Swiss Franc against the Euro this week certainly qualifies. From a Swiss point of view I applaud it wholeheartedly but from a global markets point of view I worry that this move will have
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.
The ABS released their National Accounts aggregates today, with a broad surge in GDP growth since the dismal natural disaster-affected first quarter. The key figures are below. Also important is the revision to the March quarter – up from -1.1% to -0.9%, leaving GDP up 1.38% over the year to June, and per capita GDP
Australian Data The Australian data calendar was dominated by employment and confidence figures this week and unfortunately neither provided any evidence of an improving outlook for the domestic economy with leading indicators actually suggesting we are in for weaker outcomes over the reminder of 2011. Housing finance was also subdued with investors becoming increasingly disenchanted
There is no denying that the AUD, when it wants to, is a volatile beast, when the buyers clear out it simply crashes. Yesterday was a case in point and while the AUD was clearly crashing with other risk assets there was definately a buyers strike after whoever was defending 1.00 (potentially the RBA) stepped
What a day today for markets. Everything was under pressure early and then Ken Rogoff turns up on Bloomberg talking about QE3 and off we go. This could be true or a complete furphy as it is just coincidence that the Fed is due to make an announcement on monetary policy at 2.15pm New York time
The AUD has fallen 2.45% in the first 26 hours of this trading week and currently sits at 1.0170 as I write. Last week I said that I thought the AUD would fall to 0.9700 within two months and I continue to hold that view even though it might happen much sooner than expected. But how does the
In February 2009 after I came back from holidays in Yamba I sat down with a mentor and mapped out how we thought the crisis would manifest over the coming years. I had a massive advantage over many investors and traders in that in my research I had stumbled upon a book written in 1996 by
The AUD has been smashed in the past 36 hours as markets have gone off and fear and uncertainty has risen. From trading 1.1068 earlier in the week it sits at 1.0468 as I write. In many ways it is a resumption of usual transmission for the currency that I believe is the world’s favourite punt. This
The Aussie has broken the major resistance level and this year’s high at 1.1013 today in the wake then the higher than expected CPI. While it hasn’t really gone on with it yet this break, if sustained, is important in the overall context of where the Aussie might be headed. Look at the long term
We have talked often in this space about the idea that the Australian dollar has undergone a rerating over the past year or so and that, as such, will, indeed has, held up better than could have been expected recently given all the turmoil. On Saturday in the Weekly Wrap, I discussed the big positive
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
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