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.
You’ve got to love this from the Global Times: China may gradually reduce its holdings of US Treasury bonds to about $800 billion from the current level of more than $1 trillion, as the ballooning US federal deficit increases default risks and the Trump administration continues its blistering attack on China, experts said. China, the
By Chris Becker A big rise in US employment figures and a subsequent drop in the headline unemployment rate was not enough for stock markets to get through their “wibble” moments, with the NASDAQ leading the way with another fall, and European bourses in lockstep. Oil dropped to a new one month low although copper
DXY ended the Friday session flat after a wild night: The Australian dollar likewise: Gold is parked in neutral: The oil canary carked it: Metals went the other way: And miners: EM stocks look toppy: Junk is OK so far: Yields backed up on decent US job numbers: Stocks were absolutely wild with Nasdaq down
Asian share markets have fallen across the region, but not at the same levels as Wall Street overnight, although the ASX200 is having a go at it. Bitcoin has dropped nearly $2000USD however to a two month low while gold continues to decelerate into weekly support just above the $1936USD per ounce level: In mainland
By Chris Becker Stock markets had a “wibble” moment overnight with the NASDAQ dropping 5% as the major bubble, I mean tech stocks dragged everything back, but nowhere near to reality yet. This move was based entirely on sentiment with economic reports not coming in at any surprising levels, with the ISM non manufacturing print
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Share markets continue to lift across Asia in response to the broad risk on moves overnight with the USD firming against the major currencies, plus Yuan despite a lower fix today by the PBOC. Gold is failing here, about to make a new intraweek low after its rout overnight, with momentum decidedly negative on the
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Share markets are lifting across most of Asia, although Chinese bourses are flagging, as Wall Street helped increase risk taking and optimism. Gold remains flat after its pullback overnight, still unable to get back to its former historic and weekly highs above the $2000USD per ounce level, with price decelerating into the $1965USD per ounce
By Chris Becker Wall Street cannot be stopped and was helped along by a very solid ISM manufacturing print, particularly new orders as the Fed stimulus continues to pump up the economy as the presidential election looms. This took the USD slightly higher against the majors, with the latest European CPI print undershooting, while the
Share markets are steady across most of Asia, with most putting in scratch sessions or minor losses (except the ASX200) in line with a hesitant overnight risk complex – sans the crazy NASDAQ! This looks like changing tonight however, as futures are indicating big jumps ahead for Europe but not the US, so this may
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By Chris Becker The NASDAQ was the only stock market that lifted overnight and that was due to nefarious share splits as speculators rushed in, pushing the edifice higher while everyone else looked around and nervously swallowed. China’s potential blocking of the TikTok sale in the US was behind some of the apprehension, with the
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By Chris Becker The divergence between reality and Wall Street grows ever stronger with equity markets outside Manhattan continuing their sideways or lower moves as valuations get stretched. But the NASDAQ and S&P500 both put in new record highs on Friday night as hope continues to delude traders as the USD slumped to a new
No, it’s not. Because the economy will die long before we get there. But it going higher and fast towards that death. DXY was smashed Friday night and EUR spiked: The Australian dollar went absolutely berserk against DMs, as expected following the Fed’s launch of the AUD one way bet: EMs were strong too: Gold
by Chris Becker Outside the ASX200, share markets are rising across Asia with S&P futures spiking on the back of the Trump nomination speech at the White House where he lied about well, almost everything, but markets hung on to the anti-Chinese comments for some reason. Gold spiked back to its start of week high
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By Chris Becker The NASDAQ stumbled overnight, mainly due to Netflix and Facebook finally taking some profit, while Tesla kept zooming higher, but the rest of risk complex is taking a deep breath at the moment as Fed Chair Powell announced different inflation targeting in his speech overnight. This caused some swinging volatility around currencies,
Iron ore prices for August 27, 2020: Everything down a bit. Via Bloomie: The head of the world’s largest mining company anticipates a fall in iron ore as more supply reaches the global maritime market, adding to forecasts of a fall of a maximum of several years. Futures sank in Singapore. “We don’t expect prices
DXY was roughly stable last night. EUR too: But not AUD. One could be forgiven for thinking it is the American currency: Gold was all over the place but ended down: Oil too: And dirt: Miners are still correcting: EM stocks were hit: And junk: US yields did a little jack-knife and the curve steepened
by Chris Becker Mixed sessions again here in Asia as share markets wait with baited breath for Fed Chair Powell to have a say at the virtual Jackson Hole meeting later today, with European and US futures down a little as the sidelines get crowded. First to gold which was unable to capitalise on last
Did somebody leak tomorrow’s Powell speech? DXY was hit: The Australian went bananas: Gold jumped: Oil was firm, hurricane assisted: Metals were mixed: Miners are underperforming in the circumstances: EM stocks to the moon: Junk bid: But US yields rose: As US stocks go full melt-up: Westpac has the data wrap: Event Wrap US durable
By Chris Becker The record highs on Wall Street keep coming while European shares overcame their recent hesitation as the US durable goods order came in higher than expected, bolstered by some Federal Reserve officials take on the stock market and economy. The USD was largely unchanged although the Australian dollar zoomed higher on the
by Chris Becker Asian share markets have been unable to translate the wild ride on Wall Street into anything tangible, instead following the flat European lead. Gold is weakening sharply despite a relatively mixed USD trend, as it breaks below the $1930USD per ounce level at terminal support from last weeks retracement: In mainland China,
By Chris Becker The record highs on Wall Street keep coming while European shares found some hesitation even as the closely watched IFO survey came in strong as the continental recovery seems on track – bar a second wave of COVID-19. USD faltered from its recent streak, sending Yen and Euro higher while oil prices
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by Chris Becker Asian share markets are broadly gaining in line with European and American stocks overnight, with better US/China relations the perceived catalyst. First of all, gold remains relatively steady but weak as it hovers just above the $1930USD per ounce level at terminal support from last weeks retracement: In mainland China, the Shanghai
Outgoing University of Wollongong academic, Dr Anthony Ashbol, has taken aim at the “corrupted corporatisation” of Australia’s universities, which have turned into degree factories: “I suppose the biggest change for me as a teacher is the expanding class sizes and in particularly tutorials because when I started at the University of Wollongong, small tutorials were
