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.
Barclays sums it up nicely. Until the Fed pivots… — The dollar overshoot reflects three tail risks As mentioned earlier, we estimate that the dollar is more than 20% expensive to PPP currently. Adjusting for terms of trade, productivity and real rate differentials in a BEER framework, it is still more than 1 standard deviation,
Upside volatility returned to risk markets overnight as Wall Street returned after a long weekend, with the major bourses all up more than 2%, as they play catchup to the relatively positive moves in other stock markets at the start of the trading week. In currency land, USD saw a slight pushback but mainly against
DXY sagged overnight as oversold markets bounced: The AUD dead cat bounced but it was very muted: Commodities and EMs popped but, again, it’s so far weak: The junk rebound is thoroughly unconvincing: The curve steepened a touch: Stocks did better than most: Westpac has the wrap: Event Wrap US existing home sales in May were in
Share markets are bouncing back across Asia in anticipation of a positive return on Wall Street tonight as it comes back from a long weekend. Crypto is even recovering from its crash over the weekend, with Bitcoin bouncing back above the $21K level, while the USD is solidifying against most of the undollars, with the
FTAlphaville, lovin’ it. — Have you heard that Russia’s developing a blockchain platform for international payments to replace the current Swift system? There’s a good chance you have, but if you haven’t you soon will, because the story has been stuck in a holding pattern above the news agenda for weeks. It loomed back into
TSLombard this time. I personally think that the Fed will pivot before the BOJ breaks. — BoJ says no. Pressure has been rising on the Bank of Japan to tweak its yield curve control (YCC) policy and abandon the “weak yen is good” rhetoric against a backdrop of soaring DM interest rates and intensifying pressure
Last night saw an absence of volatility on risk markets due to the lack of economic events and Wall Street being closed for a long weekend. Stock market futures look good for a solid bounce across Asia this morning with further stability in the bond market helping. In currency land, the lack of volume saw
Share markets are unsteady here in Asia as we start a new trading week, and head into the end of the financial year. All eyes are on the crypto crash over the weekend, with Bitcoin bouncing back – if you could call it that – to the $20K level, while the USD is giving up
FtAlphaville does The Crypt. — The grim reaper is stalking crypto markets. No degen is safe. These unfortunate souls have already heard knocks on their door. Who will be next? Babel Finance 16 May 2022 – “The crypto financial market is full of opportunities and hidden risks” — Del Wang, Babel CEO 17 June 2022
Nobody does QE like the BOJ. For me this is a race not between the BOJ and inflation but between the BOJ and the global bust that will trigger a massive JPY bid. Pantheon with the note. — The BoJ stuck to its guns on Friday, making no changes to policy, and claiming that no
Friday night saw volatility remain across both sides of the Atlantic, but it was all intrasession instead of more downside, with some stability in the bond market helping. In currency land, the USD pushed back against the undollars with Euro and the Australian dollar losing significant ground they had gained through the week. Bond markets
DXY is up and away again: AUD was pulverised back down: As commods gave way under mounting recession pressure. Oil: Metals too. Copper is below key support: Miners have enormous double tops in place: Everything else held on. EM stocks: Junk: Yields lifted a little: Stocks too: Watch oil. The Fed has to get it
More falling share markets here in Asia to finish the trading week, after another bath of blood on Wall Street overnight, following the rate rises from the BOE and SNB. It was the BOJ turn today, but they kept the rudder steady and didn’t join the rate rise party. The USD remains weak against most
FTAlphaville again. — While macro degens were watching the Federal Reserve on Wednesday, crypto degens were focused on another drama: a loan backed by roughly $250mn in ether narrowly avoided liquidation by a technical quirk and heaps of luck. In case you haven’t heard, “crypto winter” is here. Bitcoin is down more than 50 per
Two more central banks joined the rate rise party last night with the BOE then joined by an unexpected Swiss central bank, with European shocks already shaken falling over and then Wall Street joining in with 3-4% single session losses. In currency land, the USD pulled back again from its 20 year high, with the
DXY fell last night despite heavy risk off: AUD rose those was hit on the crosses: Oil is proving to be an immovable object: Not so metals. Copper is at breakdown point: Miners were hit: EM stocks too: Junk whoa! Treasuries were bid, signaling a shift from inflation worries to growth panic: Especially since stocks
Markets were looking good through the lunch sessions here in Asia, following the upbeat mood on overnight share markets following the FOMC meeting but have turned late in the session, with Chinese stocks leading the way. The USD is still pretty strong against all the undollars, with the bounce in the Australian dollar starting to
FTAlphaville is enjoying itself immensely. — Not all crypto crashes are alike. Most are foreseen accidents, though some may be engineered in their image. To safeguard the overall blockchain industry and crypto market, TRON DAO Reserve will withdraw 2.5 billion #TRX out of binance. — TRON DAO Reserve (@trondaoreserve) June 15, 2022 That’s Tron, which
As expected, the Federal Reserve hiked rates by 0.75% which had mostly been priced in by risk markets losing their you-know-what in the previous week of sell offs. This created a bounce opportunity with Wall Street and European stocks lifting between 1-2% overnight. In currency land, the USD pulled back from its 20 year high,
DXY eased overnight as the Fed delivered its 75bps knockout hike: AUD did the usual buy the fact: Encouragingly, oil did not: But everything else did: EMs, miners, commodities, junk: Treasuries were bid: With stocks: Westpac has the wrap: Event Wrap The Federal Reserve hiked the funds rate band by 75bp to 1.50%-1.75%, as was widely expected
Asian share markets are quite mixed following continued selloffs from overnight markets as Chinese bourses ignore the downside while Australian stocks lead the way down through bear market territory. The USD remains strong against all the undollars, with the Australian dollar still at or slightly below the 69 cent level as we head into tonight’s
FTAlphaville again. This is the leading edge of a scene of carnage for crypto the likes of which we have not seen since the Millennium “dot bomb”. Virtually no crypto investor will be old enough to remember the bursting of that bubble which culminated in the success of the website fuckedcompany.com. All it did was
Not quite calm, but no large selloffs on overnight markets as traders wipe their brow after some tough sessions but are stealing themselves for a big rate rise from the Fed soon. The USD made another 20 year high against everything with Euro, Pound Sterling and the commodity currencies all still in near freefall, with
The DXY bull market charges on. Where will it peak? 125 looks like a good place to start: Australian dollar was murdered to the post-COVID lows. The break on EUR and JPY is pretty bearish: CNY is threatening new lows: Oil eased. Gold will forecast the end of the DXY bull market. Not yet! Metals
Asian share markets continue their slump as local stocks play catchup, putting two days of selling into one session that has many spooked. The USD remains strong against all the undollars, with gap downs across the complex although stock futures are stabilising going into the European open. Oil prices are drifting slightly higher as tensions
