By Chris Becker There’s a lot to digest from overnight markets including China and India border disputes, rising infection rates and case loads of COVID-19 in the US South, plus a swathe of economic data and Fed Chair Powell’s testimony to Congress. Coupled with the ridiculous surge in Asian stocks yesterday, it all ended up
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.
DXY was strong last night: So the Australian dollar was weak: EMs were even weaker: Gold is trapped at the break out line: Oil gained: Dirt too: Miners were mixed: EM stocks flamed out: Junk did better: Bonds sold: Stocks have recovered half their recent losses: Wrap from Westpac: Event Wrap There were reports that Florida’s
It was “let’s forget about Monday” on Asian share markets today in response to the next layer of the Fed punchbowl and the potential for another Trump crony bailout/looting spree aka bailout package announced overnight. Stock markets soared with the ASX200 up over 4% at one stage while currency markets were relatively mild, as gold
By Chris Becker The Fed rides to the rescue! After looking into a 1000 drop in the Dow overnight, the Federal Reserve stepped in and announced they were buying up all the corporate bonds, injecting $750 billion into the rotten, sucking “risk” edifice that lapped it up with glee. Another papering over of real macro
DXY was down last night: The Australian dollar blasted higher: Gold was flogged early but recovered with stocks: Oil too: Dirt was weak: And miners: EM stocks held on: As the Fed lifted junk with direct corporate bond purchases: Bonds eased: Stocks were bashed then took off: The Australian dollar remains a listed US equity:
By Chris Becker Another night of mixed sentiment to finish the trading week on Wall Street on Friday with US shares opening higher before settling with a minor bounceback, relatively speaking from their volatile previous session. Other risk assets were largely range bound, unsure of where sentiment truly lies given the surge in COVID-19 cases
DXY was strong again Friday night: But the Australian dollar was even stronger: Gold is still poised: Oil firmed: Base metals are still mixed: Miners rebounded: EM stocks too: And junk: Bonds softened: Stocks managed a weak bounce: Despite the little comeback, I note that a new and less propitious narrative is developing. As the
Another red day for stocks across Asia but not as bad as expected given the huge risk off mood from Wall Street overnight with a late rally in the afternoon session covering a lot of the losses. Meanwhile the USD has firmed against most of the majors, particularly Yen while the Aussie almost broke the
DXY took off last night: The Australian dollar was thunderstruck: Gold was firm and is still poised for break out: Oil copped it: Dirt too: Miners were smashed: The EM gap into madness slammed shut: Likewise junk: Bonds lit up: Stocks drove straight off a cliff: Westpac has the wrap: Event Wrap US weekly jobless
Via Scope: Global currencies are widely used in cross-border monetary operations, finance and trade. For the issuing sovereigns, these currencies come with both benefits and costs and can therefore have significant implications for creditworthiness. In this report, we explore the drivers of global currency status and the prospects for change in the international monetary system,
By Chris Becker Last night saw the latest FOMC meeting pass, where the Fed’s stance was more accommodative than expected, and coupled with inflation data that was slightly weaker than expected, caused the bond market to tip over into a buying frenzy, with the 10 year yield falling from 0.83% to 0.73%. The USD fell,
DXY was soft again last night: The Australian dollar was firm but sold into the Fed: Gold jumped: Oil held on: Dirt is still mixed: Miners ploughed on: EM stocks too: Junk flamed out: Bonds were bid bigly: Stocks fell except Nasdaq to the moon: The Fed simply couldn’t be dovish enough to satisfy the
A flat day for stocks across Asia with Chinese shares falling the most on poor sentiment around Hong Kong. European shares look set to open a little higher with the USD falling against the majors, particularly Yen as risk seems poised here after a frenzy of buying. In mainland China, the Shanghai Composite pulled
By Chris Becker A pause a stall or a breakdown occurred on stock markets overnight – except the NASDAQ – with all major markets retreating slightly as probability finally caught up to the blowout trends. The USD was sold off once more, while Treasuries rallied leading up to tonights FOMC meeting as yields dropped back
DXY was down again last night: The Australian dollar was bashed anyway: Gold is having another crack: Oil was soft but the dip bought: Dirt was mixed: Miners soft: EM stocks tried and failed to fall: Junk jeez: Bonds were bid as markets concluded Fed yield curve control was necessary to prevent a stock crash:
Another relatively solid day across stock markets here in Asia, save for Japan which had a much needed but quite shallow pause as Yen buying continued. The PBOC cut the Yuan again today after a recent failure to beat its 2019 high while gold remains unsupported below the $1700USD per ounce level. In mainland China,
By Chris Becker Equity markets continue to fully price in a V-shaped recovery and are about to return to their pre-COVID19 highs, as Wall Street rallied overnight to a three month high following the good start to the week here in Asia. Australian markets will reopen today and likely continue the orgy of buying as
DXY has caught a little bid but is obviously under selling pressure: The Australian dollar blasted through 70 cents: As EMs descend into virus hell, their currencies blast out of it: Gold lifted: Oil flamed out on weak OPEC commitments: Dirt has lagged the rally badly given it is attached to the real economy but
A sea of green, but not quite as deep as expected following the orgy of buying on Wall Street on Friday night after the better than expected monthly US jobs report. Enthusiasm to reflect those overseas returns into something substantial has waned, with Australian markets closed due to the long weekend, with most major currencies
By Chris Becker The latest US employment figures on Friday night – aka non-farm payrolls – caused an up-swell of algo trading as the nominally positive result saw risk zoom to new monthly highs across the board, which should encourage even more risk taking here in Asia on the open. Equity markets have now fully
DXY rebounded a little Friday night: The Australian dollar is a one-way melt-up machine: EMs were mixed: Gold was whacked: Oil poured it on: Even dirt joined the party: Miners roared: EM stocks are the gapping wonder of the world: As the virus rips the EM universe apart, its riskiest debt is on fire: The
Heading into tonight’s US non-farm payroll (monthly unemployment) print, Asian stock markets have put on another strong finish to the week as risk sentiment goes back to its excessive highs following an all too brief pause. Non USD currencies are doing well before the report with gold the only undollar not to make any meaningful
By Chris Becker Risk markets finally returned to some semblance of sanity overnight, with stock markets pausing and eventually retreating slightly from their orgiastic excess all week. Meanwhile risk currencies continued to new highs as the USD weakened further, while bond yields also rose in the wake of the ECB increased its asset purchase program
DXY is getting belted now as EUR surges into the Great Fakeflation: The Australian dollar hit new highs last night before pulling back: It is murdering EMs: Gold managed a gain but is still disappointing as DXY falls: Oil marches on: Even dirt raised an eyebrow: Miners blast on: The EM stock bid stalled: But
Stock markets are yet to take a breather after a week of excess with only Chinese markets pulling back ever so slightly. Risk sentiment remains well above macro reality going into tonights ECB meeting with most currencies slipping against USD except gold which has recovered slightly to just above $1700USD per ounce. In mainland China,
By Chris Becker Risk markets continue to transmit the message that the pandemic is completely over, business is back as usual, that there are no macro structural issues at all and earnings are going to be tremendous! European markets surged despite record low contractions in service PMIs overnight as unemployment numbers stabilised, while in the