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.
US Treasury Secretary, Janet Yellen, weighed in on Bitcoin last night, clearly on the negative side. This is important: It is a highly speculative asset and you know I think people should be aware it can be extremely volatile and I do worry about potential losses that investors can suffer. I don’t think that Bitcoin
Wall Street is getting quite nervous, having suffered five straight days of declines in a row and was all set to completely rollover last night, but some calming words from the Fed chair abated that decline at the last minute. This is all due to the ructions on bond markets as yields continue to spike,
Overnight the Australian dollar fell back a little from its recent charge. In truth, it was a pretty minor setback, especially so given risk assets struggled through much of the night, wrestling with higher yields: The battler is still in a clear uptrend as commodity currencies outperform amid the great rotation from growth to value.
Asian stocks are rising despite the poor lead from Wall Street overnight, as oil prices rise to new highs and bond yields continue to spike with S&P futures looking to claw back last night’s losses. Bitcoin is having a grand 24 hours after the Musk man pushed the whole edifice over, its now back at
The NASDAQ dragged Wall Street down overnight with a very unsteady start to the trading week across the major risk markets. It’s all about the bond and currency markets again, with 10 year Treasury yields again pushing higher, this time almost through the 1.4% level, while the USD continues to lose ground especially against commodity
Readers will know that we have been expecting a scary steepening of the bond curve. The reasons are clear. The global vaccine recovery has begun. Central banks have nailed short-end yields to the floor. Fiscal stimulus is booming. There are short-term inflation pressures in the global inventory rebuild and production bottlenecks. Energy prices are surging.
Another mixed start to the trading week with Asian stock markets going all over the place in response to a mixed lead from Wall Street on Friday night, as the ructions from bond and currency markets outweigh stocks. Bitcoin gapped even higher on resumption of trade this morning – almost $57K – but has pulled
For those who are sceptical that China is on the verge of delivering a threat to the USD with the world’s new reserve currency, today marks another cynical day. There is new excitement at Bloomberg for CNY as its daily turnover rises: The article notes that the driver is the carry trade into higher Chinese
JPM: The virus crisis, by boosting money supply as well as demand for an “alternative” currency, has supported both gold and bitcoin over the past year. The older cohort preferred gold, while the younger cohorts preferred Bitcoin as an “alternative” currency. Both gold and bitcoin investment vehicles have experienced strong inflows over the past year,
Wall Street finished Friday with another whimpering session as risk spirits abated through most of the trading week. All eyes remain on currency and interest rate markets instead, with 10 year Treasury yields again pushing through the 1.3% level, pulling up peripheral bonds as well, while the USD fell back sharply as the Australian dollar
Friday night saw the Australian dollar roar higher virtually by itself. It was aided by a weak US dollar but that doesn’t fully explain it. Risk was generally muted and other currencies did not move anywhere so aggressively. Why? Wall Street bulls are still talking up the AUD despite rising US inflation and yields. Via
Asian stock markets have all broadly sold off in response to the poor lead from Wall Street throughout the short trading week, as strong US economic data continues to push risk sentiment lower. The latest retail sales figures locally didn’t cause much movement in the Australian dollar which has been resilient to USD strength and
In a crazy world, the rational is irrational and the irrational rational. That is how I would describe the state of play in the gold versus Bitcoin debate with the latest installment coming from Doubleline doyen Jeffrey Gundlach: I am a long term dollar bear and gold bull but have been neutral on both for
As noted yesterday, the Australian dollar is suddenly caught between the thermal of reflation and commodity prices versus the wind shear of rising US bond yields and inflation. Last night saw more of the same as risk markets were hit but key commodity prices, especially iron ore, rose. MUFG has more on inflation and yields:
Wall Street dropped for the third day in a row despite yet more strong economic and pandemic data with USD finally pulling back after its week long trend upwards. 10 year Treasury yields remain elevated at year highs, pushing through the 1.3% level at one stage while commodities were mixed as copper continued its own
Asian stock markets are mixed given the lack of confidence on Wall Street overnight, as strong US economic data continues to push the USD higher and leaves the risk markets a little hesitant. The latest unemployment figures locally didn’t cause much movement while the return of mainland Chinese markets saw the only bright spot across
Strong economic data from the US is haranguing risk sentiment with the USD strengthening once more on the presumption that the easing may ease off sooner than expected. Retail sales and industrial production all outshone predictions, sending Wall Street down slightly while boosting commodities and a keeping US Treasury yields elevated at year highs. Bitcoin
DXY was up and away last night: That was enough to sit on the Australian dollar: The AUD is much stronger than EMFX: Gold is breaking down as oil surges: DXY alos sat on base metals: Big miners eased: Runaway EM stocks too: Happy days in high risk ville: US yields eased: But stocks still
Asian stock markets are somewhat mixed given the stumble on Wall Streets return from a long weekend overnight, with overextended Japanese stocks falling back the most as expected while mainland Chinese risk markets remained closed for NY holidays. Bitcoin has again briefly touched the magical $50K level, as is trails ever higher ready for a
Wall Street returned from its most ironoic holiday over night and stumbled, pulling back European stocks and potentially upsetting the groove that started in Asian equities at the start of the trading week. The USD came back against the majors with the Aussie dropping alongside gold while US Treasury yields rose again with the 10
According to Citi, the case for the Australian dollar remains bullish after selling last night triggered by veiled threats in China to blockade rare earth exports: UDUSD: We believe it is premature to sell AUDUSD on the back of China rare earth export curbs headlines as it appears government officials have only enquired about the
Asian stock markets have doubled down on their great start to the week with gains across the region, including the return of some Chinese markets. Bitcoin almost touched the magical $50K level but is still trailing high at well above the $49K level as nothing can stop this bubble: The Shanghai Composite remained closed for
Wall Street was on holiday last night but that could not stop the bulls with European stocks putting in a twelve month high as positive risk sentiment across the risk complex cannot be held back. The USD fell back slightly with some intrasession volatility across the majors while futures indicate that Treasury yields will rise
There are three sources of strength for the Australian dollar when the greenback falls. First is the relative value of the US dollar. Second, is the bullish effect that it has upon capital flows into emerging markets and commodities. Third, that lead to strong Aussie growth and improving trade balances. Goldman today sees more US
Asian stock markets have started the week in an ebullient mood given the solid lead from Wall Street on Friday night with the USD given back ground against the major currency pairs as US Treasury yields continue to spike higher. Bitcoin gapped much higher this morning, almost above the $49K level before crashing back down
Friday night saw a continuation of positive risk sentiment across the risk complex with Wall Street lifting higher as it goes into a long weekend holiday. The USD was effectively unchanged with some intrasession volatility across the majors evening out while Treasury yields rose to a near 12 month high. Commodities saw solid returns again
The Australian dollar lifted again Friday night despite local economic woes attached Dictator Dan’s renewed Melbourne lockdown. The main reason for it was a soft US dollar. The USD Index should keep falling for a while yet. It is under pressure from the global recovery and it usually falls as US recoveries gain strength as
Asian stock markets are generally lower given the wavering confidence on global stocks with Chinese bourses closed due to NY holidays. The USD remains fixed a little against the major currency pairs in the wake of the higher than expected US initial jobless claims overnight. Bitcoin continues to soar ever upward, spinning spinning towards freedom,
Initial weekly jobless claims in the US spiked a little higher than expected, with continuing claims also climbing higher but that didn’t dampen all risk spirits with Wall Street edging slightly higher. The USD was effectively unchanged as were Treasury yields while commodities saw mixed returns as oil pulled back slightly while gold fell back
As stated, my outlook for the Australian dollar is ongoing gains into the low-80s this year. One of the key reasons for this is a falling US dollar. Via Societe General: Jay Powell promised tokeep the punch bowl full, but it’s a low-key party thanks to stretched positions and Chinese New Year Housing costs
