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.
DXY was down last night: The Australian dollar was firm: As were EMs: Gold was hit but held the break out line: Oil was soft but has a decent looking chart: Copper is off and running on falling inventories: Miners were soft: EM stocks popped: With better junk: Bonds were sold: Stocks rose: Wesptac has
A mixed session across Asia, echoing a similar mood in Europe and Wall Street overnight with Japanese stocks falling on reaction to a poor consumer confidence print and the possibility of more lockdowns due to a local uptick in coronavirus cases. Elsewhere it was more positive, with gold and other major currencies lifting but this
By Chris Becker Wall Street continued its rebound overnight, with the NASDAQ nearly back to an all time high and the best quarter recorded in over 20 years. This was despite two damning testimonies to US Congress from Dr Fauci about the coronavirus spread and Fed Chair Powell’s stating that a full recovery is unlikely
DXY was softish last night: The Australian dollar rose against everything: Gold put some light between it and the break out: Oil was soft: Dirt mixed: Miners firm: EM stocks weak: Junk better Bonds were soft: Stocks took off for year end: Westpac has the wrap: Event Wrap US infectious disease expert and senior official Fauci told a
Wall Street’s rebound overnight translated into similar gains here in Asia as we close out the month/quarter/financial year. In mainland China, the Shanghai Composite bounced back to recover most of Monday’s losses to be up 0.8% to 2984 points while in occupied Hong Kong the Hang Seng Index has barely moved, lifting only 0.2% higher
Via Damien Boey at Credit Suisse: An un-natural vision of stability. The US trade deficit, a proxy for foreigners’ US dollar (USD) saving, is exhibiting remarkable stability of late. Ordinarily, stability tells us that there is nothing further to see – but sometimes, it can actually be a deceptive sign of instability. Consider that the national accounting identity says that
By Chris Becker Wall Street rebounded overnight, spurned on by a surge in home sales and the usual quarter/end year rebalancing meme. Meanwhile the latest German CPI surprised to the upside which sent Euro up sharply before retreating later in the session alongside other undollars, with gold still holding to its record high, but only
DXY was up last night: The Australian dollar was universally soft: Gold held at the highs: Oil too: Dirt is clearly into an uptrend now: Miners were stable: And EMs stocks: Junk is still sending a warning: Bonds were mostly bid: Stocks rebounded on the usual late ramp: Westpac has the wrap: Event Wrap US
Wall Street’s slump on Friday has survived through the weekend to start the week here in Asia with a similar selloff, with most stock markets down 1-2% across the region. The so-called 2nd wave of COVID-19 is weighing on risk assets again, with currencies moving slightly higher against USD while gold held on to its
Via ZeroHedge: After three months of relentless contrarian bearishness by institutional investors, even as retail investors first, and hedge funds subsequently (latest HF net leverage is 99%-ile) flooded into stocks, large institutions such as vanilla mutual funds and pensions finally capitulated to the Fed which is now openly pushing stock prices higher. In the CFTC’s latest
By Chris Becker Wall Street stumbled on Friday night with yet another reversal in sentiment as the US failed response to the coronavirus with yet another record high number of cases has seen many States begin to again restrict economic activity. US stocks were off by more than 2% and futures are suggesting similar falls
DXY was up Friday night: The Australian dollar was down versus DMs: But up versus EMs: Gold flew but I’d be more comfortable if it pushed more decisively above its break out line: Oil was soft: Dirt was better: Miners fell: Junk looks vulnerable: EM stocks fell: Bonds were bidly: As stocks sank: The news
Following the bounce on Wall Street overnight, Asian stocks came back to end the trading week with relatively strong sessions. However the week in aggregate can be written off a scratch session with stocks in a clear holding pattern as the realisation of a “2nd” wave of the coronavirus throughout the US is gaining hold.
By Chris Becker The plunge protection team stepped up to the plate again last night on Wall Street as a stunningly bad weekly jobless claim print and another record high number of new COVID-19 cases in the US wasn’t real enough for shares to selloff. Commodities rallied with oil up over 2% while the USD
DXY was up last night: The Australian dollar jumped anyway: Oil was up: Gol held the break out…just: Dirt now has a firming trend: Miners were up: EM stocks too: Junk struggled: Bonds were bought: Stocks jumped: Westpac has the wrap: Event Wrap US weekly jobless claims rose 1.48m (vs 1.32m expected), but continuing claims slowed at
Following the rout on Wall Street overnight, Asian stocks took a tumble today, not helped by Chinese stocks taking the day off with both European and S&P futures in the red as traders go defensive before the amateurs start selling off. Gold came back a little as other undollars like Aussie remain depressed while Bitcoin
By Chris Becker Exuberance turned to fear overnight, and depending on what side of reality you listen to it was either Biden’s fault for leading in the US presidential polls (which means 2/5ths of SFA) or the growing 2nd wave that’s actually the unfinished 1st wave of the coronavirus. Weighing on European sentiment were more
DXY suddenly rebounded last night: The Australian dollar was weak: Gold held above the breakout line but if this gets moving it won’t: Oil was smashed: Dirt fell: And miners: Plus EM stocks: Junk is hilariously high Bonds were bid: Ass stocks were hit: It’s all pretty straight forward. The virus is back in the
Bit of a nothing session here for stocks in Asia today with only mainland Chinese and their satellite Australian bourses rising while the rest of the region puts in scratch sessions. Tonight’s session will focus on the latest durable goods order print from the US while the next IFO survey could take the wind out
By Chris Becker Exuberance is exceeding expectations across the risk complex as a swathe of economic activity data overnight pointing to a turnaround in nearly virus free Europe excited stock markets and other risk assets the world over, with tech stocks leading the orgy of buying. Forgotten was the reality of geometric progression of the
DXY resumed falls last night: The Australian dollar was pretty soft all things considered: Gold finally broke out to new closing high: Oil struggled: And dirt: Miners were strong: EM stocks too: And junk: Bonds were soft: The great bubble inflated some more: Westpac has the wrap: Event Wrap US Administration spokesmen continued to discuss the
A bit of drama to keep us traders awake today as yet another Trump nincompoop blurts out the wrong thing, sending futures to the floor before a hasty “I didn’t really mean that” retraction saw risk markets square up again. Currencies moved around as well, while gold fell back slightly as the PBOC pushed
Has Peter Navarro went off-reservation? At Reuters: White House trade adviser Peter Navarro said on Monday the trade deal with China is “over,” and he linked the breakdown in part to Washington’s anger over Beijing’s not sounding the alarm earlier about the coronavirus outbreak. “It’s over,” Navarro told Fox News in an interview when asked
By Chris Becker Risk sentiment is only positive on Wall Street due to a surge in a handful of tech stocks, as market breadth stretches out as ridiculously thin as the overall PE valuations, with the NASDAQ up through 10,000 points overnight while European bourses slipped. Existing home sales in the US dropped to a
DXY was down sharply last night: The Australian dollar surged: Gold is still stuck right at the break out line: Oil hit new recovery highs: Base metals were mixed: Miners did better: EM stocks as well: Not junk: Bonds were firm: Nasdaq kept the bubble alive, at new all-time highs: The SPX/AUD correlation rolls on:
It’s a flat start to the trading week as risk markets continue to absorb a lot of hesitation and concern from weekend stats showing the coronavirus isn’t slowing down as expected, with emerging markets and the failed US response creating a lot of “second wave” risk. Gold has lifted strongly with a decent breakout, while
Headlines from Reuters: Lowe says still have monetary policy measures to use says not at point where the AUD is a problem would like to see a lower AUD at some point hard to argue AUD is overvalued not surprising to see AUD where it is, though would like to see it lower monetary policy
By Chris Becker Risk sentiment continues to fade with another hopeful session on Wall Street dashed on Friday, selling off into the close as the risk of the “second-wave” (aka giving up on the first wave) surging throughout the US, let alone other emerging countries weighed once more. Gold shot higher on Fed comments about
DXY was up again Friday night and is signaling a rise in risk: The Australian dollar is starting to fall against all major DMs, more risk-off signal: It’s also falling against EMs: Gold roared back to its break out line: Oil is hanging in there. I’m turning bearish: Dirt was OK: Miners were hit: EM
Probable chart captions: “There is no second wave. VP Pence 15th June 2020” aka “Sometimes two plus two is five” aka “there is no spoon”…. So we end the trading week with a lot of confidence that risk market are not reflecting economic reality but fiscal and behavioral pressure with most Asian stock markets ending
