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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Macro Morning

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

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Macro Afternoon

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

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Macro Morning

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

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Macro Afternoon

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,

6

Macro Morning

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

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Macro Afternoon

Stock markets are inflating fast as the lack of any connect with reality and a weaker USD sends them careening back to their overvalued pre-COVID19 valuations. The technical recession in Australia was celebrated with the Aussie dollar almost reaching its start of year high while Brent futures shot through the $40 level on more OPEC+

12

RBA drops deflationary AUD-bomb on economy

As the Australian dollar’s unruly melt-up continues let’s revisit what the RBA said yesterday: At its meeting today, the Board decided to maintain the current policy settings, including the targets for the cash rate and the yield on 3-year Australian Government bonds of 25 basis points. The global economy is experiencing a severe downturn as countries

5

Macro Morning

By Chris Becker  You can beat protestors, but you can’t beat exuberant sentiment across risk markets overnight with European stocks surging to new highs while Wall Street finished with a flourish despite traders having to drive their Maseratis through broken glass to get to work. The Aussie dollar again outperformed against all the major currencies,

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Australian dollar to blow-off then blow up

DXY was down overnight as EUR surges: The Australian dollar is wow: Goldis still poised but can’t break through: Oil to the moon: Even first managed a puff of dust: Miners going vertical: EM stocks vertical: Junk vertical: Bonds were soft: Stocks vertical: The AUD is now making stocks look pedestrian: Westpac has the wrap:

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Macro Afternoon

Stock markets are once again oblivious to real world macro settings as the Dictator-in-Chief sends the USD plummeting against major currencies at a similar rate of decline of the US standing in the world. The RBA maintained its historically low interest rates, not going negative as many economists are pushing locally, while Bitcoin breached the

5

Macro Morning

By Chris Becker  Stock markets continue to diverge from economic reality with Wall Street lifting higher despite rising civil unrest and growing tensions with China over Hong Kong and other trade disputes. The latest ISM manufacturing survey had some glimmer of hope within but still showed extremely weak conditions across the US as unemployment ravages

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Macro Afternoon

A modest start to the week as Chinese equity markets react to the wet lettuce rhetoric from Trump on China’s boot on Hong Kong’s neck as most capital cities in the US burn, which should send housewares/DIY/retail stocks up when Wall Street opens later tonight. The USD is falling sharply, particularly against the Aussie dollar,

8

Australian dollar hits 0.67

A new post-COVID high for the AUD this morning: Bonds are stable: XJO is soft with S&P futures: Big Iron is up and away: Big Gas is struggling to believe: As is Big Gold: Big Banks are undoing the surge: A Big Chunt struggles: Westpac’s fair value model has lifted a little but remains well

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Macro Morning

By Chris Becker  Action on markets on Friday night was centered around the US reaction to the Chinese boot on the neck on Hong Kong, with Trump unable to enact anything but hot air in response which calmed stocks on Wall Street somewhat even though the headline Dow fell slightly. The weekend race riots across

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Macro Afternoon

A flat end to the week as the window dressing month end meme takes place across risk assets with most stock markets pulling back here in Asia. Besides the usual end of month reshuffle, risk is still waiting Trump’s policy announcement on China, but it seems he’s too busy having a dummy spit about Twitter

1

Macro Morning

By Chris Becker  The risk edifice continues to push higher, helped along by a reduction in continuing jobless claims in the US even though all the other economic markers show the world’s biggest economy in a deepening recession. Wall Street stumbled at the finish due to some Trump remarks with US Treasury yields rising slightly,

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Macro Afternoon

A busy day in Asia with lots of economic reports confirming the impact the coronavirus is having on world economies, with the RBA all but ruling out negative interest rates as the local appetite for capital expenditure falls sharply. Despite the economic reality, the unrelated share market rally’s continue across the region, save for embattled

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Macro Afternoon

A mixed mood in Asia despite the orgy of buying still going on in the northern hemisphere with only Japanese stocks advancing on the whiff of more stimulus measures. Meanwhile the Chinese Yuan hit a new low versus USD again, with offshore trading pushing through the 7.17 handle as other majors kept firm against USD

3

Macro Morning

By Chris Becker  The return of Wall Street sent risk sentiment higher overnight as stock markets continued their push to return back to normal overinflated bubble like status before the COVID-19 pandemic. The USD took a big hit against the majors with Pound Sterling back to a two week high and the Australian dollar pushing

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Macro Afternoon

A solid up day here in Asia despite the lack of a lead from US and UK markets with a sea of green across stock markets. The USD is weakening against all the majors, save Yen, with gold still asleep on the sidelines. In mainland China, the Shanghai Composite closed 1% higher to 2846 points,