Australian Dollar

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.

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Runaway euro crushes Australian dollar

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Macro Afternoon

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UBS: USD bull market ahead

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Macro Morning

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Macro Afternoon

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Macro Morning

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Macro Afternoon

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Macro Morning

Overnight saw some upside volatility return to equity markets due to a mish mash of good and bad economic news and some further FedTalk from hawks and doves over the coming tapering (or not tapering) of the US economy, plus the jumbles around the ever interesting labour market.  The USD took back its gains against

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Australian dollar roars on Iran oil deal

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Macro Afternoon

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Macro Morning

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Macro Afternoon

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Macro Morning

Another discerning change in confidence and sentiment overnight with Wall Street sharply reversing in the last hours after being up throughout most of the session. The cascade effect has seen Asian stock market futures rise in volatility with a probable 1% falls across the board on the open this morning. The USD also slumped, sending

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Macro Afternoon

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Macro Morning

An inability to find confidence hindered risk markets overnight, with only commodities putting on gains with European and US stocks pulling back after what was a solid finish on Friday night. A lack of economic catalysts and concerns over Middle East tensions may be the underlying cause, but some dovish comments from both BOE and

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Macro Afternoon

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Bitcoin is a CDO without collateral

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