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.
By Chris Becker Everything is fine. So where to start? US stocks had their second biggest one day falls overnight, with panic selling seeing the three main bourses lose nearly 8% in a single session, alongside European markets which suffered a similar fate. The USD continues to tank against nearly everything with Euro soaring again,
DXY is in free air and crashing as EUR, the new haven of the world (!?!?), tears the roof off: The Australian dollar ripped higher following yesterday’s fat finger: It is caning EMs: And all other commodity currencies: Oil will halve yet: Gold has not pushed through: Base metals broke: Miners flushed: With EM stocks:
Well hasn’t this been an interesting day? Oil prices drop 20% on the open this morning, taking equity markets with them as S&P futures are closed as the go limit down -5%! The local market had a shocker, closing more than 7% lower while a flash crash in currencies in the middle of the mayhem
For no apparent reason beyond the obvious, the AUD just got liquidated nearly 2%: Aaaaand, Australian dollar uncrashes: Both fat-finger and harbinger. ———————————————- David Llewellyn-Smith is Chief Strategist at the MB Fund which is very conservatively positioned for coronavirus risks including a falling Australian dollar.
By Chris Becker Markets almost brushed aside the strong US jobs print on Friday night and continued to hasten their retreat from risk taking with European bourses falling to a new yearly low, while Wall Street stumbled into the close with a near 2% loss. Fear continues to reign as bond yields plummeted to new
DXY was belted Friday night as EUR launched on: The Australian dollar built on its RBA stupidity premium against all but EUR: Gold reached the breakout point: Oil crashed as OPEC turned to bickering: Base metals were mixed: Miners crashed: EM gapped: Ominously, junk broke: All bonds were bid: Stocks were bashed again: I could
Amid the inane squawking of the Australian political economy pet shop there was one moment worth mentioning from the weekend. That gong goes to Gladys Berejiklian who inadervently described the unfolding calamity, at Domain: “There is no doubt that we are not anywhere near the worst of this,” she said. “We haven’t even hit the
Well here with go again with more selling as the dead cat rolls over on Wall Street, knocking out the line of dead cat’s here in Asia (or is it just a flesh wound?) with stocks sold off across the board. Only the usual suspects like gold, yen and bonds are having any green on
By Chris Becker Markets are being spooked again by the coronavirus with US stocks pushed sharply lower over a spike in US cases overnight, sending the USD and bond yields down with them. The 10 year US Treasury yield is now well below the 1% level to 0.9% – a record low – alongside the
DXY was hammered again last night as EUR blasted off: The Australian dollar was soft against DMs: But powered against EMs: Gold is poised for higher: Oil was smashed despite OPEC cuts: Metals did better: But not miners: EM stocks fell: And junk: Bonds boomed: Stocks swooned: China’s virus has spread everywhere now and is
By Chris Becker The Fed surprise has turned into a Super Tuesday surprise with the promise of a moderate Democrat in the form of VP Joe Biden boosting Wall Street’s hopes that no stinking socialist will grace the White House anytime soon. Stocks soared, surpassing the 4% level with the Dow up 1000 points again,
DXY was up last night: But the Australian dollar was anyway, across the board actually, as it built upon its RBA stupidity premium: Gold held on: Oil is struggling: Metals too: Miners to the moon! EM stocks too: Junk is fixed: Bonds were soft: And stocks lifted for the imminent global boom: Actually, pundits reckon
The bounce stumbled overnight but has continued here in Asia as the news of the Federal Reserve’s surprise rate cut in the wake of the economic impact of the coronavirus has been absorbed without the fear on Wall Street. Further, a lead by VP Joe Biden in Super Tuesday has also assailed the Streets fear
By Chris Becker The Fed has surprised and spooked markets by announcing an out of cycle rate cut, sending confidence down alongside bond yields, the USD and Wall Street. Nerves are frayed with US stocks closing nearly 3% lower and sending Asian futures down with them. Gold stacked on big gains however, rallying over $50USD
DXY was smashed last night as the Fed cut 50bps out of cycle. EUR is on fire: The Australian dollar launched: Gold too: Oil rolled: And metals: Miners fell: EM stocks tried and failed: Junk firmed but is surely going to break soon: Bonds blasted higher: Stocks were hammered: Westpac has the data outlook: Westpac
The bounce continues although its only a half inflated ball, with Japanese shares lagging and US futures slipping going into tonight’s session. This has all the hallmarks of a dead cat bounce and it must remembered that previous serious market corrections had big swings that were mistaken for recoveries. Gold is still struggling under $1600USD
Via Bloomie, bring it on: Prolonged equity losses and monetary easing by the Reserve Bank of Australia can send the nation’s 10-year bond yield into negative terrain for the first time, according to Craig Vardy, head of fixed income for Australia at the world’s biggest money manager. …Quantitative easing may be implemented in the fourth
By Chris Becker Bouncy bounce bounce! Wall Street surges over 5% higher overnight as Asian stocks took the lead yesterday to push risk markets higher after a week or so of carnage. This is partly in response to a coordinated effort by central banks to start easing aggressively to counter the economic slowdown from the
DXY was poleaxed last might as Fed action soothed. The ECB must freaking out about the EUR: The Australian dollar was universally smashed but jumped versus the USD: Gold bounced: Everything bounced: But EM junk struggled: Bonds were bid: Except Aussie as the market concluded a lunatic RBA will be the laggard as usual: Stocks
It’s all about the bounce today with either the start of the recovery or a dead cat bounce underway as all equity markets save the local ASX200 have seen positive results for the first time in a week. Other risk proxies like USDJPY and gold have pushed higher, with Chinese stocks leading the magnitudes despite
By Chris Becker Friday night saw an increase in intensity of selling, at least during the European session which some sanity prevailing on Wall Street eventually. Bond yield continued to fall to new record lows, while gold snapped and finally saw it selloff below the $1600USD per ounce, while oil and other commodity prices fell
DXY was down Friday night as the Fed piled in: The Australain dollar was obliterated anyway across the board: Gold is being liquidated in a rerun of the GFC. This will likely be hedge funds in need of cash for margin calls. I have warned of this many times: Oil is buggered: Metals can fall
Well it’s been a fun ride this week and it continues with another 3-4% selloff across the board today as fear turns to panic. Gold remains relatively steady but other safe havens are seeing bids with bond yields dropping and Yen soaring higher. This is indeed correction territory. The Shanghai Composite is playing catch up
Nor sure why: The bond bid is in again as well. S&P futures turned south or maybe an investment bank just declared RBA action imminent. Can’t find any obvious trigger (beyond the obvious).
Markets are starting to come apart and some real weirdness is appearing. DXY got hammered last night as the EUR soared: The Australian dollar took off versus USD but cratered vs EUR: EMs were belted: Despite DXY weakness, gold can’t run on: Oil was drilled again. I think the 2016 is the target: Base metals
The stock selloff deepened today in Asia as pandemic fears gripped markets across the region. Commodities remain depressed with the Australian dollar remaining well below the 66 cent mark vs USD while gold continued to recover from its previous profit taking slump. The Shanghai Composite is again the only market to see green on the
The Australian dollar has crawled out of the mire for a bit: But bond yields are right at record low yields and with the RBA getting the shove the AUD may be headed into another scorching: XJO hasn’t yet completed ts double top but it awfully ominous: Iron ore is beginning to break down as
By Chris Becker A modicum of stability arrived on equity markets overnight, but commodities – particularly oil – remain depressed, as bond yields continue to fall. The USD Index is up slightly having arresting some of the recent declines, but the big move overnight was a new low in the Australian dollar, hitting 2009 levels.
DXY firmed last night: The Australian dollar was universally smashed: Gold was all over: Oil sank: Metals were mixed: Miners fell: EM stocks held on: As junk was bid: Bonds were all bid: Stocks were up and down all session to this point: Westpac has the data wrap: Event Wrap Coronavirus update: markets are now
Asian markets continue their decline following the continued overnight rout on Wall Street, with local Australian stocks leading the selloff. Commodities and commodity currency remain depressed with the Australian dollar inching below the 66 cent mark vs USD while gold has recovered a little from its profit taking slump overnight. The Shanghai Composite is the
