It may be that the Australian dollar has decoupled from iron ore and bulk commodity prices, as well as reason itself, but the last few days has shown a quite striking correlation between the battler and Dr Copper. This rather suggests the dominant driver of the Aussie is broad market perceptions of global growth, not
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.
It is a potentially huge day for markets today as we have the monthly release of the big manufacturing PMI numbers. Kicking off this morning is the HSBC manufacturing PMI and then tonight we get the Markit PMI’s for France, Germany, the Eurozone and the US. These data are very important for a number of reasons
Cross-posted with permission from The Macro Man TMM thought it would be time to review their old friend, the Aussie. A couple of interesting research pieces have come out from the sellside at the same time as one member of TMM has been travelling downunder so we thought we would try to find some sense
By Chris Becker Another fascinating week on macro markets – for some late-to-the-party gold bugs, a time for reflection, for the non-position holding gold hating economists, some smugness at dinner parties, and for those of us who have opinions, but trade positions, time to shop for a new car or boat…. Remember, the following views are
From the SMH: Ross Garnaut, one of the authors of the float of the Australian dollar 30 years ago, warns that the Reserve Bank might have to consider intervening to push it down to minimise the recession he sees coming as the mining boom goes bust. Professor Garnaut, of the University of Melbourne, says he
Is it the perfect world for stocks and the Aussie dollar bulls? It’s looking like it might be. Last night the Fed minutes had to be released early because it seems they were leaked and even though they showed that some members of the committee were getting a little excited about the employment situation and
The cone of silence lowered by the RBA, Government and Opposition – none of which seems able to contemplate solutions – has taken a couple of blows today. The AFR headlines with a story from several sources: The dollar strengthened on Wednesday to $US1.05 and ¥104.7, a five-year high against the yen which is being
Jeez, two months is a LONG time in Australian public life. From RBA board member, John Edwards today: “I would prefer a lower currency and it does pose some problems for us,” John Edwards said in an interview yesterday. “But I don’t think they’re at all, at this point, the kinds of issues that require
Global macro UBS analyst, Syed Mansoor Mohi-uddin, has a very neat little note out this morning summarising the revolution that has just taken hold of Japanese monetary policy: The first meeting of the Bank of Japan under Governor Kuroda has surpassed expectations. The central bank has effectively agreed to double its pace of JGB purchases to
The Big 3 central banks really are trying to have their way with markets at the moment with the drug of choice to gain compliance free and easy money. Last week’s BoJ announcement that it would double the size of its balance sheet over the next couple of years continues to reverberate around global FX
The FT has story that should send a shiver down the spine: Central bankers are putting cash into riskier assets and exotic currencies to compensate for ultra-low returns on US Treasuries, according to a poll of officials responsible for almost $7tn in reserves. The world’s central bankers together manage reserves worth $10.9tn, most of which is
No mucking around at the Bank of Japan yesterday with the vote to double the size of the balance sheet and try to hit 2% inflation by March 2015. The fact that the vote was unanimous behind the new BoJ Governor Kuroda is also instructive that after 2 decades of moribund growth the Japanese are growing
Find below an excellent analysis from the ANZ of the BOJ move to dramatically escalate global currency wars. It’s short and worth your time. The bottom line is it’s unlikely to do much for the Japanese economy and for Australia it will be a long term negative through more upwards pressure on both the Australian
Jonathon Shapiro is one of the AFR’s better journalists. But today’s op-ed on the implications of a high dollar is not among his best work. In fact, the piece is so limited in its scope that it makes me wonder what kind of discussions transpire at the national business paper about the currency and why:
Cross-posted from The Conversation. James Laurenceson is currently a Senior Lecturer in Economics at The University of Queensland. He has previously also held appointments at Shimonoseki City. ———————————————————————————————— Julia Gillard leaves Australia for China tomorrow, her second trip to the Middle Kingdom as Prime Minister. As befits China’s status as Australia’s most important trading partner, the
The wait is over and JPY traders globally will be tweaking positions as we head into the afternoon and the long-awaited BoJ meeting. Local news sources (the Nikkei) have suggested the bank will increase its Asset Purchase programme (APP) by ‘only’ ¥1.2 trillion a month, which is far short of the ¥2.0 trillion a month
The markets were less focused on Cyprus and more focused on some weaker than expected data out of the US overnight with stocks a little lower and the US dollar a little weaker. Interestingly, the Tankan survey in Japan yesterday didn’t stop the yen from strengthening in what looks like both a technical move and
The euro and the Aussie came under some pressure overnight as the former continues to be buffeted not just by Cyprus but also the Italian political impasse and weak European data while the latter continues to do well on the crosses but just couldn’t hold the up trend under the weight of negativity thatis just enough to
The Australian dollar is the clear winner from what is going on in Cyprus at the moment and the fact that it is rallying still while gold has failed to keep moving higher suggests that money is flowing away from European assets and towards Australian assets. Last night’s move in the Aussie saw a high
I had grave concerns about the Dutch Finance Minister Jeroen Dijsselbloem and his ability to lead the Euro Group and command the gravitas and experience necessary for that position. Overnight we saw that he is still wearing his L-Plates as he torpedoed the markets rally after the Cyrpus deal was announced. In an interview with Reuters and the
So the emotional roller coaster continues and the markets were worried about Cyprus again overnight. That is now four trading days where we have been worried, not worried, on and off. This suggests that Cyprus might be a convenient ex poste excuse rather than an ex ante cause but hey who am I to argue
The VIX volatility index hit its lowest level since 2007 overnight as the Dow printed another new all-time high and the troubles with Italy and the problematic Chinese data over the weekend were ignored. As you can see in the chart at right, which is the VIX over the past 12 months, the markets estimate of volatility
The US dollar is doing something very strange at the moment. Well, not that strange, after all it’s really just something that we haven’t seen for a while. That is, the US dollar seems to be re-establishing a positive correlation with moves in the stock market and is rallying along with the Dow and the
Bloomberg is carrying an encouraging story on the release today of Japanese capital flows data: Japanese portfolio investors reduced Australian-dollar bond holdings by 439.3b yen in January, Ministry of Finance data show. This is the third straight month and the longest such stretch since six-month stretch ended July 2007. The data eludes me but there