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.
DXY was strong last night with EUR and CNY fading: The Australian dollar was universally sold: Gold took a hit and looks vulnerable for more: Oil retraced further: As did metals: And miners: Plus EM stocks: Junk did better: Treasuries and bunds sold: Aussie bonds were bid: Stocks fell moderately: The culprit was the Fed:
Caution reigns across Asia with the somewhat positive mood on Wall Street unable to be translated into any meaningful gains on stock markets, with bonds moving higher and USD firming. The Shanghai Composite was the standout however, coming back from yesterday’s slump to finish nearly 0.3% higher at 2985 points, still below the 3000 point
DXY faded last night as EUR rebounded and CNY fell: The Australian dollar rebounded against DMs: And EMs: Gold held its gains: Oil dropped heavily: Metals fell: And miners: Plus EM stocks: But junk lifted: As Treasuries were bid: While bunds sold: And Aussie bonds rose: Stocks were firm: Saudi reassured, via Bloomie: Saudi Arabia
Quite a mixed session across Asia today with Chinese stocks slumping, Australian advancing while the long weekend dampener has seen Japanese bourses remain steady, despite a weaker Yen. Oil prices haven’t moved much since their weekend gap, but this could be the calm before the storm as OPEC is due to hold a press conference
The Australian has been falling this morning and appears in danger of deeper retracement: Bonds are bid again: A stocks fall: Dalian is soft: Big iron has flamed out. FMG above $9 as China slows is something else: Big Gas is running of course: Big Gold looks very double toppy: Big Banks are down but
By Chris Becker The oil crisis in Saudi Arabia dominated the headlines overnight, pushing stock markets down and sending WTI and Brent crude prices nearly 14% higher. Other safe havens like Yen and gold continued to lift from their Asian sessions, while Treasury yields fell back amidst an absence of economic events. Commodity currencies remain
DXY took off last night as EUR sank. CNY was up too: The Australian dollar fell against EMs: And EMs: Gold was up modestly: Oil monstrously: Base metals fell: And big miners: Plus EM stocks: US junk lifted with shalers. EM junk was belted as DXY rose: But Treasuries were mildly bid: Bunds too: And
It’s an almost risk off day here in Asia as markets react to the weekend attack on Saudi oil production by the Yemeni’s, producing the inevitable spike in crude prices, gapping nearly 10% or so before moderating this afternoon. Other safe havens have seen a bid, most notably Yen but also gold which got back
By Chris Becker Friday night saw US stocks tread water despite a better than expected retail sales print with US Treasury yields instead spiking higher, dragged along by German bunds despite the ECB’s Thursday announcement of easing and more QE. In currency land, Pound Sterling continued its rise while Euro made it a new monthly
DXY was own Friday night as EUR and CNY rebounded: The Australian dollar was mixed against DMs: And EMs: Gold fell: Oil fell: Metals bounced: Miners are in heaven for no known reason: EM stocks pushed higher: Junk too: Treasuries were smashed: Bunds too: And Aussie bonds: Stocks were firm: Westpac has the wrap: Event
The risk on mood in Asia continues with very solid rises in Japan and China, with local markets drifting only a little higher as currency and commodity pressure weighs. The ECB QE outcome from last night is still rippling through currency markets with the Euro ready to surge higher again tonight. The Shanghai Composite is
By Chris Becker A volatile night on currency markets as the ECB cut rates and restarted its QE program in the face of a continental recession and Brexit concerns. Stocks rose mildly in response however, while bond yields are weirdly higher, including Euro! Oil prices fell back again while gold was largely unchanged, but remained
DXY was down. EUR and CNY up last night: Despite these perfect conditions for the AUD, it fell: Gold rebounded: Oil fell: Metals were stable: Miners rallied with iron ore: EMs stocks power on: Junk has rolled: All bonds were belted again: Stocks lifted again: The news flow was dominated by US inflation and the
The risk on mood has increased here in Asia with solid rises across most stock markets, although locally the ASX200 is dragging its feet. This is all due to the delay in Chinese tariffs, with bond yields rising and oil prices still under pressure post-Bolton “firing”. The Shanghai Composite is making a comeback, currently up
Just now: At the request of the Vice Premier of China, Liu He, and due to the fact that the People’s Republic of China will be celebrating their 70th Anniversary…. — Donald J. Trump (@realDonaldTrump) September 11, 2019 ….on October 1st, we have agreed, as a gesture of good will, to move the increased Tariffs
By Chris Becker The positive mood is quickening with overnight markets reacting to the upside on US-China trade talks with US Treasury yields hitting a one month high. The firing of NSA John Bolton saw oil price drop, plus talk of easing of sanctions on Iran, while US PPI inflation figures were upbeat, lifting USD
DXY was up strongly last night as EUR fell with CNY: That capped the Australian dollar gains versus the USD but it ripped on versus other DMs: And EMs: Gold stopped falling: Oil resumed falling: Metals too: But miners are back! And EM stocks: But junk fell: Treasuries were bid: The bund curve is still
Its been a more upbeat mood here in Asia compared to overnight markets with everything outside China moving higher. Gold is trying to consolidate below $1500USD per ounce while the Aussie dollar has spiked following a rally in bank stocks as all eyes focus on the ECB’s upcoming meeting. The Shanghai Composite is the exception
By Chris Becker Another mixed night on equity markets at least with currency markets stabilising going into tomorrow nights ECB meeting, with bonds selling off on the possibility of a cooling trade war with China. A possible hot war with Iran is likely to be averted as National Security Advisor John Bolton got the tweet
DXY was up last night despite a bouncing EUR but easing CNY: The Australian dollar flamed out versus DMs: And EMs: Gold is retracing as yields climb: Oil fell: Metals were mixed: Miners up: EM stocks stalled: As did junk: As all bonds got flogged: Stocks did not like it: MB’s four horseman of the
While the usual safe havens are weaker, Asian share markets are still quite mixed with Chinese markets and their satellites falling back, while the Japanese bourses seemed decoupled and continue higher. Gold has come off again, falling nearly $10 USD to be well below $1500USD per ounce, while the upcoming OPEC meeting is setting oil
By Chris Becker A mixed night again on Wall Street with concern over a no-deal Brexit easing slightly as Boris finds his deadline curtailed by Parliamentary law – so now he’s going to suspend it! Pound Sterling lept higher, dragging Euro with it while the Aussie fell back slightly but remains quite strong against King
DXY was flat, EUR up and CNY down: The Australian dollar is on fire versus DMs: Keeping pace with EMs: Gold was hit again: As oil took off: Metals were less interested: Miners took off: Em stocks are still running: As junk recovers: Treasuries were belted: The bund curve was nuked: Aussie was soft: Stocks
A mixture of solid advances and staid scratch session across Asian share markets as we start the week post US employment print on Friday, which should set the tone for the month ahead, but there’s so many other catalysts – and volatility measures like Trump’s tweets – that are pushing this once solid economic event
By Chris Becker A mixed Friday on Wall Street with concern over a slightly disappointing US employment print sending stocks to scratch finishes, while interest rates the USD finished lower, although gold dropped against USD as well. European bourses did better, but not by much so its a case of caution through the weekend to
The DXY breakout continued to retrace Friday night. EUR fell too. CNY jumped on RRR cuts: The Australian dollar roared higher against DMs: It kept pace against EMs: Gold was hit, oddly: Oil rose: Metals split the difference: Big miners stalled: EM stocks lifted: Junk is rescued: The Treasury curve flattened: A daisy cutter fell
A sea of green across Asian share markets to finish the week in a mood of optimism as more “talks” about the trade war between US and China scare away the short sellers. Gold has hung on despite a big inversion overnight while USD has risen against Yen and Yuan, with the Australian dollar still
By Chris Becker Its all about trade talks again overnight with US stocks leading the charge, European stocks also surging while the FTSE retraced as a higher Pound Sterling and more Brexit chaos takes a toll. The services ISM was surprised to the upside, helping boost sentiment and taking some heat out of gold which
DXY held its ground last night as CNY rolled and EUR slowed: The Australian dollar skyrocketed against DMs: And EMs: Gold was hosed: Oil was firm: Metals jumped: Big miners too: EM stocks gapped higher: Junk took off: Treasuries were a bath of blood: And bunds: Plus Aussie debt: Stocks to the moon! Wrap from
A boost to optimism across risk markets today, following potential upside to the continued US-China trade talks, but this seems like a repeat of the last time! A bit of market manipulation from both sides is at hand with the PBOC again strengthening the Yuan, with gold falling slightly as the USD strengthens nearly across
