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.
Outside of Chinese stocks, its been a relatively mild response on stock markets across Asia today following some mixed economic prints overnight, with local shares pulling back as the Australian dollar lurches towards the 74 cent level. While gold falls asleep just above the $1800USD per ounce level, Bitcoin has finally come to life with
The private ADP jobs number in the US overnight disappointed overnight, basically due to a lack of healthcare jobs as that sector reels from the delta COVID outbreak. This wasn’t enough to shift risk spirits however, with Wall Street remaining relatively as only tech stocks lifted higher. The latest ISM manufacturing print was more upbeat,
Forex markets are settling into a comfort zone that excludes the Fed taper. DXY has confirmed a false breakout and EUR is up: The Australian dollar has given back all taper losses: However, the reason why taper is off, slowing growth, also weighed on commodities: And miners: EM stocks did better: But not junk: The
A relatively strong response on stock markets across Asia today as risk comes back to start a new month following some mixed economic prints overnight. The USD is bouncing back slightly although the Australian dollar surged on the latest GDP print and gold remains very strong here above the $1800USD per ounce level with the
Stock markets had a minor pause overnight due to a surprise upside print in European inflation and subsequent more talk about tapering QE while Wall Street absorbed a big fall in Chicago PMI print. Risk currencies and gold pulled back slightly, the former keeping well above the $1800USD per ounce level as USD remained relatively
Forex markets are range trading again. Except for the Australian dollar which took flight on RBA hot air. DXY was firm and EUR soft: The Australian dollar made news highs across the board: Commodities were all over the place: But big miners sagged with iron ore: EM stocks jumped: And junk is serene: Despite curve
Forex markets calmed down last night as DXY firmed and EUR plus AUD fell: The Australian dollar eased on all crosses: Most commodities fell: Except for the copper bubble: Big miners eked out another small gain: As did EMs and junk: As yields fell: And FAAMGS took flgith: Westpac has the wrap: Event Wrap US pending
A very solid positive start to the trading week here in Asia following the non-hawkish language on Friday from Jackson Hole, with most stock markets rising across the region. The lack of taper talk is keeping risk spirits elevated, with the new record high on Wall Street plus a goldilocks personal inflation print on Friday
Forex markets reacted in the usual fashion to a dovish speech from Jay Powell Friday night. DXY was flattened and EUR bounced: The Australian dollar went nuts: All commodities, miners and EMs took off: The dash for trash ripped: As the curve flattened again: Growth stocks launched: Westpac has the wrap: Event Wrap Fed Chair
The Jackson Hole conference ended up being less hawkish than expected with Fed Chair Powell giving US stocks another lift higher with no announcement or talking about tapering Fed stimulus. This sent Wall Street to a new record high and the USD through the floor as commodity currencies like the Australian dollar were able to
A very mixed finish to the trading week here in Asia with most stock markets putting in scratch sessions or minor retracement as traders await the outcome of the Fed’s Jackon Hole meeting and the PCE inflation print. The USD has fallen back slightly against the undollars, including Bitcoin but its gold that has found
The latest US GDP estimate came in firmer than expected and coupled with Fed member Kaplan gunning for a taper, this sent risk sentiment into reverse mode with Wall Street selling off after its snapback rally. Commodity currencies like the Australian dollar were unable to sustain their own bounceback despite a big rise in iron
Forex markets reversed course with Fed Governor Robert Kaplan last night. He wants taper. DXY rose and EUR fell: The Australian dollar fell: The usual followed with commodities, miners and EMs sagging: Junk is still OK: But the curve resumed flattening: And stocks rolled over: Westpac has the data: Event Wrap US Q2 GDP’s second
Chinese stocks took a major tumble today in the wake of the Korean central bank raising rates which could the first step or misstep in battling the inflationary demon. The USD firmed against almost everything as a result with gold pushing further below the $1800USD per ounce level while Bitcoin has failed to maintain short
Wall Street extended its rally to five days with concerns around Fed tapering and COVID-19 continuing to dwindle (until the next bad news print) with the latest German IFO survey leading to a minor pullback locally while the US durable goods orders didn’t surprise either way. Commodity currencies like the Australian dollar continued their bounceback
Forex markets continue to forecast a free and easy Fed at Jackson Hole as DXY falls and EUR rises: The Australian dollar is roaring off the bottom: Oil and gold eased back: Base metals have repaired the recent damage: Not so big miners: Nor EM stocks: Junk is fine, though: The curve steepened: But growth
Stocks were a bit unsettled across Asia today with the USD firming against major risk currencies and undollar assets, arresting a weakening trend since the start of the trading week. Traders are awaiting the outcome of this weeks Jackson Hole conference with Fed tapering still on the minds of many, with gold inverting back below
Yet again, risk markets set aside real risk concerns and continued lifting undollar assets across the board although notably tech stocks outperformed everything else. Commodity currencies like the Australian dollar continued their bounceback while Treasury bond yields lifted slightly although short term yields continue to fall. Oil saw another big rally, up nearly 4% while
Forex markets have jackknifed. Sorting out why is no mean feat. DXY was soft again but is still holding support at previous resistance. EUR was up: The Australian dollar is bouncing like a dead cat: All commodities too: Plus miners, EMs and junk: The US curve steepened: Stocks flew but led by growth: Westpac has
Green across the board here in Asia with stock markets continuing their very strong start to the trading week as overnight markets including Wall Street absorbed more really good economic news that wasn’t good enough to stop the taper. Commodity currencies and undollars are bouncing back with gold remaining above the $1800USD per ounce level
Morgan Stanley with the note: The spread of the Delta variant and developments in China have caused the summertime blues and muddied the waters of the global reflation story. Don’t get blue, sell blue eurodollar futures, stay long USD. We discuss the relationship between a range of currencies and our policy expectation stickers (M1KEandP1KE). Inflation-Linked
Last night saw the risk mood remain buoyant as more US FDA approvals of vaccines and a series of flash PMI prints nearly confirming expectations that the Fed won’t taper as quickly as expected. Wall Street led by tech stocks rallied the hardest while the USD was sold off across the board with beleaguered commodity
Forex markets were filled with hope for MOAR from Jackson Hole on Monday night. DXY was smashed and EUR surged: The Australian dollar launched: And the usual action followed a weak DXY. Commodities and EMs to the moon: Even big miners managed a tiny big cat bounce though iron ore kept falling: The US curve
Asian stock markets are starting the trading week in a much better fashion after the solid lead from Friday night on Wall Street with risk spirits higher despite some big increases in daily COVID infections across Europe and the US. Commodity currencies are bouncing back after cratering all last week although gold is almost unchanged
Nordea with the note. I am not as confident as they are on an imminent taper. Tapering is now openly the base case of the Federal Reserve for this year unless something goes wrong. The meeting minutes revealed a fairly big hawkish turn from a majority of the FOMC members. “Looking ahead, most participants noted that,
Friday night saw the risk mood turn buoyant after a tipsy turvy week of oscillating between fear and hope as the BTFD crowd stepped in again to rescue Wall Street. The lack of economic catalysts or further bad news helped pushed defensive assets like the USD down, allowing undollars to catch their breath while Treasury
Forex markets calmed down a little Friday night after last week’s extended fireworks for the Australian dollar. DXY gains eased off and EUR rebounded: Australian dollar has no support to 70 cents: CFTC data shows increasingly aggressive short positioning in AUD but there’s more room still: Oil is fooked. Gold is going well all things
Asian stock markets continue to sell off with only local shares escaping the risk off mood as European and Wall Street futures look dim going into the end of the trading week. Commodity currencies continue to crater although gold is holding on here but cannot manage to break through resistance at the $1800USD per ounce
The Australian dollar is in free fall again today as the PBoC refused to cut the prime market rate (its version of the cash rate): I do expect the PBoC to break on this eventually. But today was always far too early. We’ll a number of RRR cuts first. The more interesting question is will
TS Lombard with the note: Delta won’t derail this recovery. We stand by the view we put forth last month that investor concern about the surge of the Delta variant in southern US states was overdone. But this view was conditioned b your understanding that there would not be another round of lockdowns–either centrally-imposed by
