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.
Via Shane Oliver: For a long time, we have been bearish on the Australian dollar, seeing a fall into the high $US0.60s and revising this to around $US0.65 in May. In early October it fell to a low of $US0.6671. While negatives remain significant for the $A there is good reason to believe that we
A solid session for most Asian stock markets although this hasn’t translated into a full risk on response from S&P and Eurostoxx futures as currencies were unable to move in their risk proxy directions as usual, Yen in particular. The gold price and Yuan fix stayed steady while Bitcoin attempted but failed to breakout of
It’s not a universal safe after all. If the price avocadoes crashes then so does you BTC, via FTAlphaville: Bitcoin, that famous uncorrelated safe haven, seems to be crashing again. Reasons given for the crash include “China euphoria” fading (Xi Jinping said something blockchainy in late October and apparently the jubilation that followed has now, suddenly, disappeared); “concerns about a crackdown”; “pressure
By Chris Becker A big surge on overnight markets with US stocks making new record highs in the wake of fresh optimism surrounding the US/China trade deal and the run up to the Black Friday retail orgy. Tech stocks led the way while European bourses also had a solid night with more ECB wonkery explaining
DXY was up last night as EUR sank: The Australian dollar closed at new lows versus the USD: It did better versus EMs: Gold is fading again: Oil hanging on: Metals want no part in the rally: Miners joined anyway: EM stocks jumped: Junk too: All bonds were bid: Which helped shove stocks to record
Weekend news of a possible resolution or movement of some kind in the US/China trade talks although the IMF is right to say this might be just domestic politics posturing as one country tries to stabilise internal struggle while the other tries to kick out a corrupt autocrat. Does it matter which? Gold fell again
By Chris Becker US all the way on Friday night with Treasuries, the USD Index and Wall Street all advancing in tandem on the back of (spurious) claims by Trump that the US/China trade talks are advancing well – even though he later contradicted that in a Fox news rant. In Europe, new ECB President
DXY jumped Friday night: Which dragged the Australian dollar to new closing lows: It was better that EMs: The great Australian dollar short has returned at -48k contracts. Check out that relentless 12 month negativity: Gold eased: Oil too: Metals found a reprieve: Miners lifted: EM stocks fell: Junk was good: The Treasury curve flattened:
Another generally mixed day in Asian risk taking given the poor performance on Wall Street overnight as the stronger USD weighs on markets. Chinese stocks are really struggling here, with the Shanghai Composite down nearly 0.6% to be well below 2900 points although the Hang Seng Index has found a modicum of buying support, currently
By Chris Becker The USD re-asserted itself overnight as stock markets stumbled surrounding the continued lack of good news emanating from US/China trade talks, with Wall Street putting in minor losses. Oil rallied although this didn’t help commodity currencies as the Canadian Loonie dropped on domestic comments, dragging the Aussie and other proxies with it.
DXY was up last night as EUR faded: The Australian dollar was universally dumped: Gold was soft: Oil strong: Metals are sick: Miners did better: EM stocks fell: Junk was fine: Bonds sold: But stock also euphoria faded: Westpac has the wrap: Event Wrap US Oct. existing home sales rose +1.9%m/m (vs est. 2.0%m/m) to 5.46mn (est. 5.49mn,
Another sea of red across Asian stock markets today following the same wave overnight on Wall Street, despite the Chinese trying to shore up optimism that trade talks won’t stumble and fall into the 2020 calendar year. Moody’s downgrade of the Australian state budgets weighed locally with the Australian dollar struggling to get back above
DXY lifted last night as CNY and EUR fell: The Autralian dollar was universally belted: Gold firmed: Oil too: Metals are sick: Miners too: EM stocks fell: Junk fell: All bonds boomed: As stocks rolled: Westpac has the wrap: Event Wrap Reuters reported that a Phase One deal with China may not happen this year, citing unnamed sources
By Chris Becker Overnight markets were rocked again as the possibility of the US/China trade talks extending well into 2020 firmed, as domestic concerns outweighed the bigger picture, stumbling on tariffs again. US stocks are down nearly 1% going into the close while the USD has firmed against most of the majors. Looking at the
No surprise that risk markets are wobbling on any sniff of trouble surrounding the US/China trade deal, as Trump throws the word “tariff” in the air again, which sent US stocks lower overnight, leaking into safe havens here in Asia. Chinese stocks have reversed their recent bounceback, with the Shanghai Composite slumping nearly 0.8% lower
Via CNBC: China is heavily exposed to the U.S. dollar, but now, with the risk of “decoupling,” Beijing is silently diversifying its reserves to reduce its dependence on the world’s largest reserve currency, analysts say. Ongoing trade tensions with the U.S. has “increased the risk of a financial decoupling” between the two largest economies, ANZ
Via FTAlphaville: Over the years bitcoin has frequently been touted as a “safe haven”. It’s an idea that seemingly doesn’t to want to die, despite the fact that its pretty much the most volatile things you can get your hands on and there’s been a stream of thefts and hacks worth hundreds of millions of dollars from exchanges and
Good stuff here from HSBC: The only other game changer I can see would be a major European fiscal stimulus that, so far, is not coming.
DXY was soft last night as EUR and CNY lifted: The Australian dollar added a bit versus DMs: And EMs: Gold held on: Oil let go: Metals did better: And miners: Plus EM stocks: Junk was soft: Bonds all rallied: Despite stocks charging on: Wrap from Westpac: Event Wrap US Oct. housing starts (1314k, est. 1320k) and permits
By Chris Becker US stocks lost ground as Trump fumbled around comments regarding Chinese tariffs, pushing industrials down while tech stocks had a slight tick upwards, as the USD lost ground against the undollars. Pound Sterling was the exception as the Tories continue to par back in the polls while Bitcoin cracked below the $8000
Japanese stocks are weighing on Asian risk taking as selling exhaustion is seeing Chinese markets both on the mainland and in oppressed Hong Kong surge higher. The USD remains under pressure although a lack of buying in Aussie dollar is seeing the local currency fall short of the 68 cent level. Chinese stocks have continued
DXY fell last night as EUR lifted and CNY swooned: The Australian dollar was hit against DMs: EMs were even weaker: Gold held on: Oil fell: Metals are telling a very different story to stovcks about the global economy: Miners fell: Em stocks were stable: And junk: Bonds were mostly bid: And stocks are now
By Chris Becker A very quiet night for stock markets as weakness in USD sees risk taking a back seat with scratch sessions on both sides of the Atlantic. The USD fell against Yen and Euro in particular, while Bitcoin reached a new monthly low by crossing below $8300. Looking at the action on Asian
Check out this terrible piece of analayis from CNBC: China is heavily exposed to the U.S. dollar, but now, with the risk of “decoupling,” Beijing is silently diversifying its reserves to reduce its dependence on the world’s largest reserve currency, analysts say. Ongoing trade tensions with the U.S. has “increased the risk of a financial
Outside local stock markets, the rest of Asia is bullish coming out of the Friday night play on overseas markets, where risk taking remains strong as Wall Street reaches a new record high – again. The USD remains weak against most of the majors although gold is struggling to find buyers while the Aussie dollar
By Chris Becker Friday night saw another new record high for US markets, all based on the expectation that the US/China trade talks will still present a positive outcome for both. USD fell against most of the majors while the risk proxy USDJPY pair jumped, so combined this should result in a very good start
DXY fell Friday night: The Australian dollar lifted: EMs were roughly stable: The diminshed AUD short position lasted one week, alas Gold fell: Oil climbed on a big drop in the US rig count: Metals sagged: Miners jumped: EM stocks too: Junk was firm: All bonds fell though Australia much less: Stocks soared towards heaven:
Outside China, stocks are quite boisterous here in Asia leading to good buy signals for the northern hemisphere as we close the trading week out. The USD is coming back against Yen, while risk proxies Kiwi and Aussie bounced a little higher today but are lacking any signs of real momentum. Chinese stocks are still
DXY eased last night as EUR firmed: The Australian dollar was put to the sword versus DMs: And EMs: Gold bounced: Oil fell: Metals were crushed: But miners did better as iron ore bounced on Pavlovian stimulus hopes: EM stocks were soft: Junk was fine: Bonds roared: Stocks were soft: There was not much in
By Chris Becker Overnight risk markets are in retracement mode as the USD also falls against all the majors except the commodity proxies as Aussie, Kiwi and Loonie remain subdued. European stocks fell as bond yields dropped everywhere except in Italy, while oil prices are not moving as the latest inventory report surprises with a
