Lombard with the note: Last Friday, Fed Vice Chair Richard Clarida reasserted the Fed’s declaration of independence of monetary policy from what other central banks are doing. In his speech “Perspectives on Global Monetary Policy Coordination, Cooperation, and Correlation.” he said — “Today I will make a somewhat different, and less often discussed, case questioning
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.
Equity and bond market volatility increased overnight not due to the economic calendar but the twin catalysts of OPEC+ reconsidering their options on the back of oil reserve release plans and the re-nomination of Fed Chair Powell by President Biden. Wall Street was up before the nomination but quickly retraced with the NASDAQ oversold as
DXY is a raging rocketship as EUR crashes: The Australian dollar was weak: Oil and gold too: Base metals rallied on misplaced China stimulus hopes: As did miners: EM stocks were hit: Along with junk: As yields spiked and the curve pancaked: Stocks did not like it: Westpac has the wrap: Event Wrap US President Biden renominated Powell for
Nordea with the note: It used to be “two weeks to flatten the curve”, but somehow it has developed to “imprison the unvaccinated (or worse)”. Lockdownistas have been on parade also over the past week, with “ihre papieren bitte”-systems being implemented in many countries to try to boost the injection rate. Ireland has implemented a semi-lockdown
An uneasy start to the trading week for Asian stock markets as Chinese bourses continued to diverge in fortune, Japanese markets tread water while local shares continue to slump. The USD is holding strong against the major currency pairs with Euro looking to put in more monthly lows while gold is trying to hold on
Friday night saw risk sentiment continue to wobble with European COVID restrictions pulling down oil prices significantly, with inflation concerns still lingering. Wall Street was quite mixed as tech stocks soared, while the S&P500 faltered alongside European bourses which retreated across the continent. USD strength is back on track with the Euro putting in a
Another very mixed finish for Asian stock markets as Chinese bourses diverge in fortune, Japanese market clawback there losses while Australian shares were largely listless. The USD is holding ground after a big swingback in Euro previously, while the Australian dollar remains below the 73 handle and gold holds fast at the $1860USD per ounce
The latest US initial weekly jobless claims buoyed risk taking on Wall Street which was almost able to get back to its previous highs while a stronger Euro took the sails out of European bourses which retreated across the continent. USD strength is waning temporarily after being extremely overbought following last week’s inflation print, although
Another poor effort by Asian stock markets but to be expected as both Wall Street and Europe stumbled overnight in the wake of another “surprising” high inflation print, this time in the UK, with inflation fears lingering throughout the risk complex. The USD is maintaining strength against nearly everything, although Yen is holding on to
Credit Suisse with the note: Our long-held bearish EURUSD view continues to play out, and largely for the original set of reasons we had put forward. The most notable of these was our expectation that rate differentials would continue to widen in the greenback’s favour. This view got a major boost last week after the
A little bit more risk aversion crept in overnight as USD strength pulled back after surging strongly from last week’s inflation print. The UK inflation print also surprised to the upside, taking the air out of most European stocks with Wall Street eventaully finishing slightly down as well. Treasury yields fell back slightly but the
The DXY rocket eased up overnight and a seared EUR stabilised: That couldn’t save the Australian dollar which was pounded across the board: The strong DXY is wreaking havoc with commodities already. Oil was down though gold up: Base metals puked: Bid Iron is onwards and downwards: EM stocks have rolled again: Though junk held
A generally dour day for Asian stock markets following a very bullish session on overnight markets with the burgeoning USD and increased concerns about the Chinese property market weighing on risk markets. The USD continues to gain against nearly everything, with the Euro cracking below the 1.13 handle and pushing the Australian dollar to new
Nordea with the note: We warned back in September how lockdowns would become relevant again within a matter of months despite right about every politician declaring victory against Covid-19. We currently see targeted measures against those who remain unvaccinated across Europe to combat “the pandemic of the unvaccinated”, but these measures are very unlikely to work wonders
Last night saw USD surge against all the major currency pairs on the back of a very positive US retail sales print, with Wall Street almost returning to its previous record highs, as a much lower Euro buoyed European stocks. Treasury yields continued to lift above the 1.6% level again while gold pulled back slightly
Asian stock markets remain relatively unsettled with a lack of economic catalysts save the volatility on bond markets helping dampen down risk spirits. The USD is relatively strong against the major undollars, with gold pushing past the $1865USD per ounce level while Bitcoin has collapsed through its recent support levels, about to push below the
Interesting dynamics in forex markets last night as both the USD and AUD rose strongly. DXY crashed EUR: Yes AUD rose anyway: Gold and oil both struggled: Base metals all fell: Big miners fell: EM stocks eased: Junk is still rebounding: The yield curve steepened: Which stocks did not enjoy: Westpac has the data: Event
Last night saw the return of bond market volatility with Treasury yields spiking up through the 1.6% level again as the USD rebounded against all the majors, with Euro taking a very deep dive. Wall Street was unchanged as a result with minor scratch sessions, while European shares had solid lifts higher, but look subdued
A fairly solid start to the trading week for Asian stock markets although Chinese bourses are unsettled as risk markets continue to discard transitory inflation risks just like the Australian government discards its climate change policy the day after COP26. The USD is mixed against the majors although gold is looking a bit tenuous here
Forgive no charts today, I’ve got a glitch. Westpac has the data: Event Wrap US JOLTS job openings in September remained strong at 10.4bn (est.10.3bn, prior revised to 10.6bn from 10.4bn). The job opening rate slipped to 6.6% from 6.7% but remains near below the record high of 7.0% from July, and the hiring rate was
Friday night showed that the fallout from the US inflation print has been largely contained on risk markets with Wall Street rebounding to almost get back to its record highs while bond markets were contained as volatility reduced again after spiking mid week. The USD actually closed lower against most of the majors, particularly the
A bullish end to the trading week for Asian stock markets with a rising tide across the region as risk weighs up the rising inflation threat in the US against ongoing property troubles in China. The USD remains quite firm against undollar assets except gold which is continues to consolidate above the $1850USD per ounce
Nordea with the note: We continue to find that the Fed is too confident in the transitory narrative, even if they have moved consistently in the direction of our views since the beginning of this year. Our newly updated forecast of three rate hikes during 2022 (June, September and December) is admittedly slightly under pressure
The fallout from the US inflation print continued overnight although the closed US bond market reduced volatility in that most important market, leaving shares to lift ever so slightly. The USD continued to advance against all the majors save gold, which is moving higher above the $1850USD per ounce level. Euro again fell back sharply
DXY has broken out and the sky is the limit versus EUR: The Australian dollar sagged across the board: Unusually, gold rallied anyway. Oil was soft: Base metals were mixed: Big miners took off because Evergradnde is fixed and buy all the things! EM stocks and junk lifted on the Evergrande rescue, such as it
Following last night’s US inflation print, shockwaves continue to spread around currency and bond markets, with Asian stock markets caught up somewhat as the USD surges against undollar assets and local shares battered due to a higher than expected unemployment print. Gold remains strong as it consolidates at the $1850USD per ounce level while Bitcoin
The big news overnight was the obviously not-transitory US inflation print, up more than 6% annualised, the biggest move in over 30 years which sent Wall Street down sharply and the USD flying against all the majors save gold, which hit the $1850USD per ounce level. Euro almost hit a two year low while the