Economically speaking, Australians are very fortunate people. We are also some of the most ignorant. These truisms are played out superbly in the least understood yet most important feature of Australian markets. What’s the best asset hedge in the world? This, via BNP Our analysis has two stages: a historical assessment of the most reliable
Australian Dollar Analysis, News and Forecasts
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.
Stock markets are in hesitation mode despite the clear US jobs report from Friday night as concerns over the Federal Reserve tapering their stimulus earlier than expected are not yet cleared. Bond yields are up slightly while Wall Street was quite mixed, with tech stocks falling back, while the USD slipped only a little against
Watch out for a short squeeze. Via Goldman: Over the week ending June 1, non-commercial traders net sold $0.9bn USD, after net sales of $1.4bn USD in the week prior. Both asset managers and leveraged funds appear to have contributed to the net Dollar sales. Traders net sold Dollars against net purchases of EUR, JPY,
Not so good news for the US middle class with the latest unemployment data disappointing, but great news for US stocks and the rest of the risk complex as the worries over the Federal Reserve tapering their ebullient bond buyer programs were quickly dashed. The once resurgent USD fell sharply against everything, while Wall Street
Forex did a full-blown reversal Friday night. After readying for tearaway US jobs and a rising DXY, instead we got Goldilocks numbers and violent jack-knifing as yields were clubbed and risk bets roared back. DXY and EUR changed places: Australian dollar hit a trampoline: Gold firmed. Oil is off and running: Base metals were subdued:
Stock markets are relatively upbeat here in Asia despite the risk off mood from overnight caused by the “too good” private jobs figures that are pointing to a tapering by the Fed if tonights US employment print also goes into the “too good” category. Bitcoin is rolling over this afternoon after obvious resistance at the
Risk markets played the taper game last night with the latest US private jobs data report sweeping aside any notions that the Fed will hold off on tapering their bond buying program, with the latest ISM service survey also showing a huge rebound in the US economy. The USD surged as a result against all
After a week of going nowhere, forex lit it up last night as we approach tonight’s US jobs report. The big, smart, hot money piled into DXY and everything else got caned. EUR sank: Australian dollar was crushed: Gold was put to the sword. Oil survived it: Base metals were smacked: And big miners: EM
Stock markets are performing while again in Asia with Chinese bourses again pulling back while traders and bots in general look to moderate before going into tomorrow night’s US jobs report, the most important event on the economic calendar. Currency markets are seeing a rebound in USD strength, pulling the Aussie down while gold prices
Risk markets were once again constrained by the upcoming US unemployment print tomorrow night with Wall Street barely clocking over some gains despite a good lead from Asian shares yesterday. The Fed’s Biege Book surprised to the upside while the latest German retail sales number fell back unexpectedly. This caused a bit of volatility on
What is Australia’s secret weapon against China, I ask? Iron ore! I hear you scream. Wrong. Sure, iron ore’s good to have. It makes steel. That’s pretty important if you want to build apartments, bridges…and guns. But iron ore is not forever. Even if it seems so. Why, you say? For one thing, those really
All markets are becalmed. They are waiting for US jobs come Friday. The BLS release has within it the prospect of breaking today’s impasse. If jobs boom then the recovery narrative can gather speed and DXY rally. If they stall again on supply-side hiccups then markets will probably push back Fed action. DXY and EUR
Again we’re getting a lot of mixed signals across stock markets at least in Asia with Chinese bourses pulling back while Japanese and local stocks lift higher, despite the lack of a lead from Wall Street overnight. This has not yet translated into anything substantial for European markets with futures barely lifting off the ground
Wall Street returned from its long weekend and at first was ebullient but sold off all the gains throughout the end of the session, finishing with a scratch result. The US economic releases were solid with a record high manufacturing PMI, while the survey was upbeat but a little mixed. Bond yields moved around a
Forex was calm again last night as range trading has taken the place of longer-term position while the market waits for critical new data such US payrolls this Friday. DXY and EUR are trading places daily: The Australian dollar trends against crosses are unchanged: Oil is breaking out of its bullish pattern as OPEC plays
A mixed tone across risk markets here in Asia with the lack of a lead from Wall Street overnight and only the RBA meeting giving any proper catalysts for traders to work on, with currency markets lifting slightly against USD, particularly Pound Sterling, with gold continuing to climb above the $1900USD per ounce barrier. Bitcoin
Markets were mostly closed last night for northern hemisphere holidays so not much in the way of price moves to report. Westpac has the data wrap: Event Wrap German CPI inflation rose 2.4% y/y in May -above the 2.3% expected and the highest level since 2018. Reopening and goods shortages were the main factors. Event Outlook
A muted tone across risk markets here in Asia with the lack of a lead forthcoming from Wall Street due to the long weekend holiday in the US partly to blame. Currency markets are seeing a mild reduction in USD strength coming from Friday’s volatile session, although gold remains nice and calm above the $1900USD
Wall Street reacted meekly to the first Biden budget on Friday night, ending the trading week with a zero result. Volatility in currency markets briefly spiked while other markets also experienced some end of month window dressing going into the US long weekend, with Monday expected to be very quiet. Commodity prices were nominally bullish
We’ve been expecting a pop in US inflation over Q2 and it did not disappoint. DXY rallied as EUR fell and AUD was clobbered. That said, US yields fell, indicating that markets were expecting higher still. DXY versus EUR: The Australian dollar was hit on all crosses: Gold rose, oil fell: Dirt was firm: Miners
Quite a mixed trading session to end the week here in Asia, with Japanese stocks soaring while Chinese bourses are relatively steady following a late surge on Wall Street overnight. A much stronger USD is no longer weighing on risk markets although major currencies are still in the doldrums, with only gold hanging on to
Stock markets were nominally weak overnight until after the Wall Street close, with economic data in the US not inspiring but keeping the stimulus floodgates open. USD again surged particularly against Yen, although it continues to lose ground against Yuan as Fed TaperTalk dominates forex trading decisions, with end of month window dressing (Monday being
As we head into tomorrow night’s US core PCE read, markets were largely calm though commodities rebounded after a recent battery. The AUD ignored it anyway. DXY and EUR were stable: Australian dollar was stable if a bit stronger on the crosses: Gold fell. The oil chart is shaping for a bullish breakout: All dirt
A muted trading session here in Asia, echoing overnight tones with the stronger USD weighing on risk markets. Gold however is holding above the $1900USD per ounce level while Bitcoin has stalled yet again, failing to get back above the $40K level, having been somewhat steady since its Monday morning gap down: The Shanghai Composite
Credit Suisse with the note: The past week has seen a further consolidation within established ranges in the G10 complex, with the best relative performances coming through the EM space among EMEA currencies, in particular the CE3 which are benefiting from local rates re-pricing in the face of strong growth and rising inflation risks. Of
It was all about the USD overnight in a nearly uneventful trading session as European and US stocks were largely unchanged while the major currency pairs all pulled back strongly as Treasury yields firmed slightly. Again, Fed TaperTalk may be the cause of the catalyst, as traders position for a more robust and hawkish Fed
More positive moves across the board here in Asia, save local stocks as the Aussie dollar blipped higher alongside the Kiwi as the RBNZ meeting resulted in both currencies jumping higher against the USD. Gold is pushing above the $1900USD per ounce level while Bitcoin has broken out above the $40K level after being relatively