Australian Dollar

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.

21

Henry says high dollar to Hell and back

From AAP: Former treasury boss Ken Henry has told business the Australian dollar is likely to remain high for the foreseeable future. Dr Henry told the Australian Industry Group forum in Canberra it would not be prudent to bank on an early sizeable depreciation in the exchange rate. “There is no silver bullet that is

68

Cut rates for a lower dollar

That’s the argument made by many MB commenters and today by Westpac’s Huw Mackay (of Phat Dragon fame)  at the AFR. …the most recent balance of payments data show that gross foreign purchases of Australian assets were 42 per cent debt and 58 per cent equity. Westpac proprietary customer data shows that foreign sovereign purchases

49

China stamps Australian dollar with reserve currency status

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 –

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McKibbin urges RBA to force down Australian dollar

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

22

Central banks piling into Australian dollar

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

11

Czechs buy Australian dollars

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

11

Carrying the Euro

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

9

Australian dollar resilience

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

16

Australian dollar squeeze underway

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

106

Bundesbank confesses plan to poach Australian industry

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

8

Australian dollar rally and reversal

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

29

Australian dollar bounce?

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,

27

Australian dollar over sold

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:

117

Sorry Dr Henry, Australia is not a safe haven

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

22

Australian dollar to 90 cents?

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

4

Australian dollar waving, not drowning

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