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.
It’s been a much better start to the trading week then many thought possible with S&P futures indicating a 1% drop at least across Asian stock markets on the open, with many risk currencies gapping down this morning, before a swift reversal has seen risk come back much stronger. The fallout form the short squeeze
The short squeeze continued on Wall Street Friday night as the Gamestop debacle spilled over into a selloff across the board on both sides of the Atlantic as nominal gains for the year evaporated. The USD remained strong against most of the majors, although gold and silver are showing signs of life with the latter
Via Bill Evans at Westpac: The RBA Board meets next week on February 2. Earlier this week in an extensive report “What Next for the RBA” we made the following points:• RBA will extend the Quantitative Easing (QE) program by a further $100 billion with the announcement coming at either the February Board meeting or,
Well, that was a fun night! Wall Street is giving it all to stop the Gamestoppers stepping on their sacred ground, but in the end its resulted in a big turnaround in stock market fortunes, with gains across both sides of the Atlantic. The USD reversed course against most of the majors while Treasury yields
Via Credit Suisse: As we highlighted in our Key Themes for 2021, bearish the USD remains a core theme for 2021, but a consolidation/recovery phase was expected in the early part of the year following the fall to our first core bear target and major support from the 2018 low. We believe this consolidation has
A sea of red out there on Asian stock markets in response to the largish falls on Wall Street overnight from a crazy short squeeze as the professionals (sic) continue to clutch their pearls as Redditors and Robinhooders go after their next target. USD is definitely King Dollar at the moment, with gold and silver
Wall Street’s wobble in the previous session has turned into a full rout overnight with short-exposed hedge funds tipping the major bourses deep into the red. European stocks followed, wiping out their previous gains as the risk market pivots to a much less hopeful stance despite the latest FOMC meeting resulting in a hold on
The Australian dollar took a pounding last night: As DXY surged off a little head and shoulders bottom: Westpac has the wrap: Event Wrap The US Federal Reserve’s FOMC left its policy settings unchanged as was widely expected: a 0%-0.25% Fed funds rate range, and at least $120 bn/month bond purchases. The statement reiterated that QE will
Risk is wavering throughout Asian stock markets with only Japanese stocks advancing as the USD firms against most of the major currencies in the lead up to tonight’s Federal Reserve meeting. While half of Reddit is watching GME, the other half are still watching Bitcoin which still can’t get out of its Friday night breakdown
Via Citi: Monday saw hawkish messaging from a White House press conference on China relations as outlined here. President Biden emphasized he would not rush towards significant changes in US-China policy. Under Secretary of State Anthony Blinken, we are likely to see a continued state of rivalry in the near-term albeit less volatile relative to
Last night saw a wobble in Wall Street despite the IMF upgrading global economic growth projections and a fall in the USD. European stocks lifted strongly to the upside, but US stocks couldn’t follow in kind despite some vaccine good news. Treasury yields lowered slightly, the 10 year remaining above the 1% level while commodities
Via Credit Agricole: After sitting out the markets during the holiday period, the FAST FX model has triggered a sell AUD/USD trade. There are a couple of sources to this trigger: (1) after several weeks of being unstable, the primary model for AUD/USD has returned to being stable; and (2) while the FAST FX model
Friday night saw the release of the latest PMI surveys on both sides of the Atlantic, with the US print unexpectedly higher but that economic recovery didn’t help risk markets higher with Wall Street finishing the trading week on a sour note. The USD came back slightly in defence while US Treasury yields lowered slightly,
From Friday: Current yuan exchange rate is within a reasonable and balanced range,” the State Administration of Foreign Exchange (SAFE), China’s fx regulator, said in a statement on Friday. “Changes in international markets could lead to more fluctuations in China’s foreign exchange market.” “Will step up monitoring on cross border capital flows and risk assessment.”
Asian stock markets end the week on a poor note, having absorbed the Biden inauguration and initial policy reversals, with commodity currencies weaker against USD as gold and silver remain relatively steady. Bitcoin briefly dipped below the $30K level but has had a small boost this afternoon, but is this enough to stave off a
Last night saw the frothiness in risk markets take a small pause as bond yields rose slightly on the lower than expected US weekly jobless claims, as the latest ECB meeting also made no waves. The USD continued its retreat however, while commodities were mixed, Bitcoin crashed to a new monthly low. The cryptotulip was
Data from Westpac: US weekly jobless claims eased back from last week’s high levels. Initial claims came in at 900k (vs. est. 935k, prior revised to 926k from 965k), with continuing claims at 5.054mn (est. 5.3m, prior revised to 5.18m from 5.27m). Housing starts rose 5.8% (est. 0.8%, prior revised up to 3.1% from 1.2%), and permits rose
Share markets are rising in co-ordination following the Biden inauguration, with risk appetite soaring overnight, with the USD in full retreat as gold and silver is breaking out to new highs. The latest numberwang saw the Aussie dollar reach new highs, but Bitcoin is slowly deflating however, again selling off throughout the session to be
Via Societe General: EUR/CNH may be the most important FX pair in the world now ◼We move from Janet Yellen’s confirmation hearing to the new President’s inauguration, which is likely to see more pomp and ceremony and less cause for markets to move. The main economic data point of the day came from slightly higher
Asian share markets are somewhat mixed and unsettled going into tonight’s newsflow with Trump “serving” his last day as US President, with focus and realisation of both further stimulus and big tax increases confusing risk appetites. Bitcoin is at another crossroads, having sold off throughout the session to be back below the $36K level and
A couple of charts today show that there is a developing problem for the short USD trade that is currently dominating markets. They pertain to the EUR: DXY can’t fall if EUR is. Largely this lag in recovering EUR yields is a function of its second-round COVID lockdown. With vaccines rolling out now and being
Two events changed risk appetite overnight with the closely watched German ZEW survey and Janet Yellen’s testimony in Congress supporting the bullish mood on Wall Street as traders returned from the US long weekend. Oil prices lifted more than 2% while the USD retreated against most of the majors. Bitcoin continued its tepid start to
The US long weekend had a deleterious effect on trading volume and hence volatility overnight with most risk markets remaining in stalled mode as they await there queues from Wall Street. European bourses had slight rises while currency markets were equally sanguine. Bitcoin started the week with lower volatility than usual, hovering around local resistance
Via Westpac: 1. What does a global “reflation” trade look like in Australia? • It would not be a 2021 Outlook piece without a recommendation to position for the global “reflation trade”. • Given that global central banks are committed to anchoring cash rates, and in the case of the RBA, also adopting YCC out
Asian share markets remain unsettled after Friday’s fizzer on Wall Street, as the upcoming Biden presidential inaguration later this week is possibly hindering risk taking. Gold and silver had wide trading ranges to start the week while Bitcoin has been falling sharply later this afternoon after it failed to breach the $40,000 level late last
Via Goldman on the US dollar: USD: Risks to bearish consensus in focus.The Biden transition team hasannounced plans for a $1.9tr fiscal stimulus, more than our economists hadexpected. Although they do not expect the full amount to become law, theyraised their stimulus assumptions on the news (to $1.1tr from $750bn) andhaveupgraded their US GDP forecasts.
Friday night saw risk markets continue their reversal of confidence as Biden gets closer to taking the presidency and a very large – and taxing (sic) – stimulus package comes forth. The latest consumer confidence numbers doubled down on the weak US economy meme following the initial jobless claims surprise, putting pressure on the Fed