by Chris Becker The relief rally continues across Asia, although after the long lunch break, the Shanghai Composite is barely scratching along after a good open. The ASX however is doing excellent, rising nearly 2% on the back of bank stocks while the Hang Seng is up 1.7% and the Nikkei up 0.5% as the
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.
By Chris Becker The Brexit fallout continues in political circles, but markets are returning to the “everything will be fine” phase as Euro and Sterling rally against the USD, pushing up stock markets across both sides of the Atlantic. The lower almost benign volatility was helped by some solid releases overnight, with the spooked German
by Chris Becker Chinese stocks lead the way in Asia and throughout the world, absorbing the Brexit drama with nary a worry, up another 0.5% today as the ASX also clawed higher, as did gold and oil as “buy” buttons continue to be pushed across the risk complex. The positive lead overnight from Europe
Cripes this is wrong: Jamieson Coote Bonds executive director Charlie Jamieson said rather than its conventional status as a commodity-linked risk asset, the Aussie had become “somewhat of a flight-to-quality currency” amid recent Brexit-related volatility. This was largely due to the country’s relatively high interest rates and triple-A rating by the three main credit rating agencies. The two-notch downgrade
by Chris Becker After a risk-off mood in Europe and the US overnight, stock markets in Asia were mixed today, with the Nikkei the only standout, rising 0.4% as Japanese bond yields across the curve are now all below -0.1%, yes, thats MINUS 0.1%! Aussie bonds are also being chased with the 10 year dropping
By Chris Becker The fallout from Brexit continues with stock markets falling on both sides of the Atlantic, ignoring the positive lead from Asia. As I contended yesterday it was going to be words from the actors in this saga that push markets around, not deeds, with a crash meeting between Merkel, Hollande and Italian
by Chris Becker Markets rebounded in Asia today, following the wild ride from Friday with a small gap down in the major USD pairs now closed to where they started. The Aussie dollar fell below 74 cents and is under pressure going into the London session as interest rate cut bets firm going into the July or
by Chris Becker Where there it is. An epic day on Friday following the Brexit referendum and a valid reason why many FX and trading houses limited both margin and contract sizes as volatility went to “never seen before” (read: a couple times a decade) levels. So many traders and of course business journalists caught
From Morgan Stanley: We see GBP moving to 1.25-1.30 and 15-20% downside to European equities relative to Thursday’s levels. Corporate and sovereign credit present the best opportunities to buy on weakness Economic implications: The UK faces a prolonged period of uncertainty which should lead both investment and consumption to wane. Longer term, a less open
by Chris Becker Everything is awesome is the number one song on the traders playlist going into the Brexit referendum, with stocks and all currencies except Yen soaring into the exit polls this morning. Commodities were also dragged along with both oil markers up 2%, copper continuing its surge while traditional safe haven gold remains depressed. The
Markets know the result of the Brexit vote in advance apparently and it is “stay” so the US dollar fell: Euro and yen were also weak: Commodity currencies went nuts with the Aussie breaching 76 cents. However, it no more or less excited than the basket (Aussie just below zero): Gold continues its expected pullback
The wonderful thing about markets is that they always offer second chances. Today we have a great example as the Aussie long bond completely erases both its post-rate cut rally and Brexit flight to safety: And likewise the Aussie is flying: So, has the prospect of more monetary easing in Australia changed? In asymmetric terms,
by Chris Becker Hesitation is the name of the game on risk markets overnight, with stocks hesistant to believe that all is well just before the Brexit referendum, even though Pound Sterling and Euro broke out to new highs against the USD. Weekly DOE oil inventories were less than expected which sent WTI down and Brent
From NAB: In attempting to quantify the potential implications for the AUD, we note that last August when Chinese stock and currency market-related stresses saw the ‘VIX’ proxy for market risk aversion briefly above 50 from below 20, the AUD fell from above 0.74 to below 0.69. If we go back to the collapse of
by Chris Becker Another night of waiting for Brexit to happen with central bankers adding to the volatility with their “words”. Mario Draghi said the ECB would do anything (but it won’t do that) to help inflation along, which sunk the Euro and helps European stocks, while Janet Yellen reiterated the call for “looking for
by Chris Becker I’m getting sick of writing about Brexit (man-flu doesn’t help) but there it is – stocks are literally following the fortunes of polls, with a big rally overnight corresponding with a rising chance that Brexit won’t happen. Pound Sterling and Yen remain strong against the USD, pulling the Aussie dollar and industrial
by Chris Becker Brexit remains the key concern on global risk markets as we get closer to the referendum, to be held this weekend, as stocks were mixed on Friday night with little other economic catalysts to go on. Currency markets are following a safe haven route, although Pound Sterling is recovering, Yen and gold
by Chris Becker A volatile market session overnight with a brace of economic releases, tragic news around the ongoing Brexit saga and then two major central banks meeting and abstaining from further stimulus. The BOJ held fire so the Yen jumped against everything, while the BOE stayed the course a week before the Brexit referendum
by Chris Becker The Fed holds in June! Crisis averted? Not quite but the language from the meeting sure gave equity markets a slight reprieve as Brexit concerns continue to weigh. Personally, I got several notices overnight from my trading providers that margins will be squeezed coming into the referendum, so the concerns are growing
by Chris Becker Brexit continues to weigh on markets, obviously in Europe the most but this fear is dragging risk down everywhere as the USD regains its premier position while gold hops along for the ride. The May CPI print for the UK came in lower than expected, and coupled with Brexit took the floor
From Sinofax: The Australian dollar has proved resilient amid the current bout of global jitters, climbing against all but the most traditional safe-haven currencies. In late afternoon trade on Tuesday, the Aussie was buying US73.98¢, up slightly on the same time on Monday and compared with a low this year of US68.27¢. Its resistance comes despite investor flight
From Deutsche: We view further easing by the BoJ as unlikely. Given the recent risk of a Brexit, the BoJ naturally has to be cautious regarding taking additional easing measures ahead of the UK referendum. Although we are maintaining our official outlook that the BoJ will lower its negative policy interest rate a further 0.1%
by Chris Becker Fear is ruling markets at the moment, fear that central banks cannot support the flailing fundamentals across global economies, with the Fed still keen on raising rates, the BOJ contemplating more useless stimulus and the BOE flustered by a possible “Brexit”. Once again, falls in crude oil are pushing stock markets down