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 mixed start to the trading week here in Asia with only the ASX200 pulling back in response to the small selloff on Wall Street on Friday night, as the rest of the region continued higher. The PBOC fix of the Yuan saw it strengthen a lot in offshore trading, down to 6.90, reaching a
by Chris Becker Friday night’s US NFP (non-farm payroll) unemployment print for December reset the strong USD meme that had been in place since the New Year with the King of currencies falling back on lower risk expectations. While the headline unemployment rate remains flat at 3.5%: The monthly numbers were well below expectations and
By Chris Becker Friday night saw a big reversal in USD as the long awaited US unemployment (non-farm payroll or NFP) print for December showed a much less than expected pace – only 145K jobs created – with a subsequent risk-off mood on Wall Street. Undollars like gold and especially the Australian dollar broke higher
A mixed end to the trading week here in Asia as risk positions for tonight’s US unemployment print that will set the tone for the rest of January, post the Iranian crisis. Meanwhile, the PBOC daily Yuan fix saw another drop in offshore trading while the latest retail sales print pushed the Aussie dollar slightly
by Chris Becker The latest retail sales data has temporarily paused the end of week selloff in Australian dollar, as the US unemployment print tonight remains in sight as a continued divergence for USD holders. The Pacific Peso has blipped 20 pips higher from its very tight current trading range: The weekly trend remains down,
By Chris Becker The relief rally continues as the de-escalation in the US-Iran brouhaha boosted risk sentiment higher, although the recent news of the Ukrainain jet disaster being Iran shooting the jet down will complicate this significantly. Nevertheless, stock markets reached new record highs again on Wall Street, while bond yields are higher and currencies
Risk took a calm sigh here today in Asia as the relief rally widened, with stocks rallying hard alongside risk proxies like USDJPY. The PBOC daily Yuan fix saw a big drop in offshore trading, down to the 6.92 level and almost a yearly low while the latest Australian trade balance figures didn’t effect the
by Chris Becker Well, at least for the rest of the week. The easing off of tensions between Iran and the US has seen a flop in oil prices, but no commensurate move in the commodity proxy Australia dollar, even as other undollar assets like gold, Yen and Bitcoin stumble. This morning’s release of the
By Chris Becker Risk markets were in relief mode last night as the teleprompter did the talking for Trump, easing off on strikes against Iran, which sent the USD higher against nearly everything and pulled out the stops on Wall Street, although defense stocks were disappointed. Bond yields are higher, while the USDJPY proxy jumped
Well it’s been an interesting day to say the least here in Asia for risk markets with the Iranian attack on US bases in Iraq dominating the news and sentiment. Gold spiked above the $1600USD per ounce level alongside Bitcoin and other safe haven assets, setting of a chain of cash spilling out of stocks
by Chris Becker Not a good night for Australian dollar bulls with the Pacific Peso kicked down below 69 cents against the USD in what at first glance looks like a technical move: The risk proxy AUDNZD pair was also hit hard, moving to a new monthly low, surpassing the July 2019 terminus: Looking at
By Chris Becker Risk markets continue to stumble around in the new year with the latest US economic data surprising slightly to the upside, pushing the USD higher against almost everything, but in particular the Australian dollar which crashed to a monthly low. Tensions over Iran have almost dissipated – the calm before the storm
There’s a more positive mood across Asia today due to Wall Street brushing aside any concerns about WW3 overnight, as the USD holds firmer across the board. The long wait to the February RBA meeting is seeing probability of a cut rising in the wake of poor macro data and the upcoming slashing of the
By Chris Becker Risk markets remained cautious overnight in response to the ongoing US/Iranian tensions with European stocks dropping before a late rally on Wall Street saw Treasury yields rise as the mood improved. Gold held on to its big breakout while oil prices moderated only slightly. The USD rose against Yen in the risk-on
There’s a lot to digest for risk markets starting the trading week here in Asia with the return of Japanese traders to their desks adding to the volatility. Gold got an awesome bid in the morning, gapping some $20 higher to a near seven year high, as other risk proxies and safe havens reacted to
By Chris Becker The positive start to the trading year soured on Friday night on the news of the US airstrike assassination of a top Iranian general, combined with a very disappointing ISM manufacturing print saw US stocks fall. US Treasury yields fell alongside the USDJPY pair as safe haven bids took hold, while both
The risk complex is reeling from higher tensions in the Middle East as a top Iranian general is killed, with oil prices spiking considerably in the wake of the attack. Stocks are generally down in the region, although the local market was spared while gold also spiked higher on the tension. The Shanghai Composite is
By Chris Becker The start of the trading year was much better in the Northern Hemisphere overnight, with Wall Street rallying as tech stocks pushed the risk complex higher, despite a reversal in strength in USD which saw Euro and Pound Sterling fall. Gold prices continued their uptrend while Bitcoin remains depressed below the $7000
The big move on the return of Asian stock markets today after the New Year was cut the PBOC cutting banks’s reserve requirement ratio by 50 bps, starting next week which in effect releases nearly $1trillion in funding. At the same time, a drop to 6.96 on the official daily Yuan fix has seen risk
by Chris Becker Well the Pacific Peso has started the new year over the 70 handle versus USD, capping off a big rally since the start of December: In the short term, momentum is hugely overcooked, running at twice the normal level that happens during a rally, so expect a retracement soon. This rally is
By Chris Becker The end of the trading year was marked by a lot of profit taking and squaring up as the month end and quarterly end triple witching saw major rebalances in equity portfolios, although Wall Street was largely immune from any downside volatility. Gold finished on a high while the USD came back
Asian stock markets remain in light volume mode, which always increases the risk of volatility, especially to the downside where selloffs were the order of the day. The USD was still weaker, in particular against gold which ran up to a three month high above $1520 USD per ounce. The Shanghai Composite is up just
By Chris Becker The Santa Claus rally on risk assets is over with a wide selloff overnight as traders square up their results for the year. Both Wall Street and Europe saw the same losses – around 0.75% or so – on stock markets, while oil and gold prices were steady. Volume still remains pretty
With most markets here in Asia are still in light volume mode, there continues to be some downside volatility in USD as the year draws to a close. The Chinese Yuan is appreciating, with a drop below the 6.98 level in offshore trading while gold jumped another $5 to be above the $1515USD per ounce
By Chris Becker Given the thin and volatile trading over the Christmas Period, this morning’s report will take a step back and look at the weekly trend overall. Starting with local Asian share markets where the Shanghai Composite finished the week just above 3000 points after dipping well below that level during the Christmas week
By Chris Becker Stocks advanced on both sides of the Atlantic, as thinner volumes and macro concerns are waved away as the Santa Claus rally continued apace. The latest US durable goods orders slumped unexpectedly, which sent the USD down slightly, while gold finally found some life as commodities were flat. Looking at the action
DXY was roughly stable last night: Allowing the Australian dollar to break to new closing highs against all major DMs: It is stronger than EMs for now as well: Gold lifted: And oil: Metals fell: Miners struggled: EM stocks also want to break out: Junk was mixed: Bonds sold: Stocks edged higher (of course!): US
With most markets here in Asia in light volume mode, there’s been a bit of downside volatility that’s not unexpected going into the Christmas period. The PBOC increased the Yuan fix well above the 7.01 handle and offshore trading has followed in kind, while Bitcoin has jumped higher from the weekend gap – now up
By Chris Becker Wall Street continued the Santa rally with the fourth straight record high week with confidence surrounding the US/China trade deal builds. European stocks also rose as the BOE kept rates on hold in its first post election meeting, while oil prices finally fell back after a stellar run. Looking at the action
DXY was up strongly Friday night as EUR sank: The Australian dollar jumped anyway versus DMs: And EMs: Surprisingly, net positioning on the CFTC moved more short last week to -46k contracts, though the trend is clearly towards more neutral: Gold held on: Brent fell as the US rig count jumped. The market does not
