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.
A forty year surge in US inflation sent markets in a spin on Friday night with most risk markets pulling back while Wall Street just kept launching higher despite clear signals that the Fed is going to have to put an end to the party sooner rather than later. pulling back from its bounceback rally.
DXY eased Friday night despite tearaway US inflation: The Australian dollar was firm: Oil and gold firmed: Base metals were soft: And big miners: EM stocks faded: Nut junk rallied: The Treasury curve steepened: And stock lifted led by GAMMA: US inflation was very strong but it is going to fade ahead. BofA: Consumer inflation
Asian stock markets are all retracing in unison in the last session for the trading week due to the very mixed results on Wall Street and European shares overnight. The USD is regaining strenght against risk currencies although Euro is still under pressure coming into the London session, while the Australian dollar remains well above
Credit Suisse in the club: Global markets have traded on a more stable footing this week so far, recovering from the sharp weakness of the past fortnight, when fresh uncertainty around the newly emergedOmicron variant drove a rapid pullback in market sentiment, triggering particularly steep losses in US technology stocks, crude oil and crypto assets.
Risk markets are getting unsettled again in anticipation of more Omicron news but also the German and US inflation prints later tonight with Wall Street pulling back from its bounceback rally. The bond market is firming, with the 10 year Treasury yield pulling back below the 1.5% level while the USD is regaining strength against
DXY was up and away as the latest CPI approaches: The Australian dollar flamed out: All of the usual anti-DXY moves followed. Commodities, EMs and miners down: The Treasury curve flattened again: And stonks went backwards: Westpac has the wrap: Event Wrap US weekly initial jobless claims fell to 184k (est. 220k, prior 227k) – the
Asian stock markets are quite mixed as we head towards the end of the trading week due to the very mixed results on Wall Street and European shares overnight. The USD is continuing its retreat against risk currencies although Euro is pulling back slightly coming into the London session, while the Australian dollar remains well
Risk appetites had their fill overnight with stalls on European markets while Wall Street managed a small lift higher as the bond market slid, with the 10 year Treasury yield rising above the 1.5% level. Currency markets upped the volatility with a big breakout in Euro while the Loonie extended its reversal against USD strength
DXY was down and EUR up overnight: To infinity and beyond! Everything anti-DXY up: Except EM junk: Treasury curve steepened: Stocks led by GAMMA: Westpac: Event Wrap Bank of Canada kept its policy rate at 0.25%, matching widespread expectations. Officials reiterated that the “economy continues to require considerable monetary policy support.” As such, they remain committed
There’s debate around the Barefoot Investor that makes for interesting reading: Money expert Scott Pape, who is better known as the Barefoot Investor, has hit back at claims that he is “costing his followers” a fortune by not backing cryptocurrency. He has been accused of “embarrassing” himself and sticking his “head in the sand” when
Asian stock markets are having very solid returns in response to the big bouncebacks on Wall Street and European shares overnight with the USD retreating slightly against risk currencies with the Australian dollar heading up through the 71 cent level. Meanwhile gold is starting to get momentum after being flat all week, currently pushing through
Risk appetites increased overnight with very strong results on European markets and Wall Street, both pushing 2-3% in single session gains. The bond market saw another easing in yields as the 10 year Treasury yield headed towards the 1.5% level while currency markets extended their reversal in USD strength but only in risk currencies like
Ever since COVID, markets have been unhinged and they have not disappointed again. Just as a modicum of sanity threatened, the madness returned in spades. DXY was firm and EUR weak: Australian dollar roared anyway. We shall see now if former support turns resistence: Oil crashed up: Base metals meh: Big miners to the moon!
Asian stock markets are having a big bounce across the region in response to a nearly equally strong bounce on both European markets and Wall Street overnight, possibly due to the PBOC stimulus measures as other catalysts are wanting. Gold remains in the doldrums, holding on to the $1780USD per ounce level, not making any
RBC with the charts: It doesn’t look good for EM, commodities and AUD to me.
Nordea with the note: The new virus variant has added yet more uncertainty to the global economy, but that has not stopped the Fed from signalling faster tapering ahead. Meanwhile, Euro-area inflation continues to surge even further above the ECB’s forecasts. It’s probably a good time to retire that word (transitory) and explain more clearly
Risk appetites inverted overnight with a lack of economic catalysts save an easing in Chinese monetary policy following the disappointing US unemployment print from Friday night. European shares rebounded the most while Wall Street took back almost all of their Friday slump as the bond market saw a slight easing in yields as the 10
DXY firmed overnight as EUR fell: The Australian dollar also rebounded: With oil: Base metals were mixed: Miners popped: EM stocks still lokk nasty: Junk is weak: The Treasury curve steepened a litte: Stocks lifted: Westpac has the wrap: Event Wrap German factory orders in October disappointed with a fall of 6.9%m/m, to be down -1.0%y/y (est.
Asian stock markets are having mixed returns in response to the selloff on Wall Street on Friday night in the wake of the disappointing NFP jobs report. The USD remains strong against all the majors as the Australian dollar broke below the 70 cent level while gold is holding on above the $1785USD per ounce
Risk markets were fixated on the all-important US unemployment print (non-farm payroll) on Friday night, which disappointed with a big undershoot (200K vs 550K expected), upsetting stock markets which were up 1% or more as Wall Street slumped more than 1% on the print. The bond market continues to broadcast earlier than expected Fed rate
Well…that escalated quickly. DXY was firm Friday night and EUR soft: Despite muted major moves, the Australian dollar was slaughtered on the crosses, taking out key support levels for both a bearish descending triangle and head and shoulders top neckline: Oil and gold were volatile but fine: Base metals soft: Big miners were murdered: EM
Asian stock markets are putting in fairly solid returns for the last session of the week in the wake of solid moves overnight on Wall Street. The USD remains strong against all the majors as the Australian dollar is still in a depressed mood, unable to get back above the 71 cent level. Bitcoin is
The Australian dollar just cracked another 13 month low: As yields are bid in: For some bizarre reason, markets are still pricing a positive carry into Aussie yields versus the US, a patently absurd proposition. More from Coolabah Capital: Financial markets are riddled with seemingly intractable inconsistencies right now. Arguably the best barometer of the
Equity markets were mixed again in fortune overnight although Wall Street came through with a late bounce despite another round of hawkish Fed speeches, with post close futures indicating a bit more hope sneaking into Asian equities for the last session of the week. The bond market continues to broadcast earlier than expected Fed rate
DXY firmed last night and EUR fell as OMICRON fears eased: The Australian dollar is at new closing lows on all crosses this morning and appears to be grinding through the 0.71c support level: Oil capitulated then found a bid as a desperate Goldman issues notes hourly: Base metals were weak: But big miners took
Hope and fear remain in equal parts across risk markets with Asian stock markets reflected of the divergent fortunes in overnight markets, although it seems Europe will start with a slip as Eurostoxx futures are lower. USD remains strong against all the majors except safe haven buying in Yen while the Australian dollar is back
Equity markets diverged in fortune overnight with an overdue bounce on European shares not followed through on Wall Street as concerns over Fed Chair’s Powells hawkish stance tripped up risk taking, with 2% plus falls the result. The bond market was shaken up as well with the 10 year Treasury yield falling back to just
DXY was roughly flat last night though all over the place in the process: Australian dollar likewise though rising risk-off is obvious in the yen cross: Oil lol: Base metals softened: Big miners are still hanging on: EM stocks recaptured support: Junk got worse: As the Treasury curve pancaking really gets moving: Which stocks did
Some hope is creeping into risk markets across Asia despite further falls in stock markets overnight with Wall Street and European futures also creeping higher going into the important manufacturing PMI prints. USD is re-engaging to the upside after a slew of running to safety in Euro and Yen while the Australian dollar is finally
Another COVID correction is brewing on risk markets with dead cat bounces on Wall Street falling over due to Fed Chair Powell’s comments on fast tracking the taper despite short term concerns over the Omicron variant. European shares joined in on the selling again, while bond markets jumped around especially on the short end but
