Via Damien Boey at Credit Suisse: As bonds have rallied furiously in recent weeks, an interesting development to note is that Australian real yields have remained flat, while US real yields have fallen sharply to negative from positive. As a result, the Australian-US real 10-year bond yield differential has closed to -0.1% from -0.4% in
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.
By Chris Becker Its all swings and roundabouts with the Chinese overnight indicating they won’t retailiate against Trump’s latest tariffs (and they’ll overlook his lying about phone calls too!), which sent risk markets sharply higher, dragging the USD along as well. Treasury yields dropped, with the 10 year losing 10 points as money went back
Just to add salt to trade war wounds, DXY us right at the breakout line as EUR breaks down. CNY bounced: The Australian dollar hit a 20 year closing low: It was much weaker than commodity EMs: Gold sagged: Oil firmed: Metals split the difference: Big miners dead cat bounced: EM stocks firmed: US junk
Another relatively mild session across risk markets here in Asia today until late in the session with traders eyeing the latest musing from China on the trade war with the US. Chinese stocks were the worst off with the Shanghai Composite down a handful of points again, remaining below 2900 points while the Hang Seng
The Australian dollar has been falling all day as weak capex data confirmed the economy has been sucked into a deep growth black hole: Still, bond yields have stopped falling because…well…just because: XJO is toying with a major peak to match 2008: Dalian is soft again: Big Iron is dead cat bouncing today. FMG near
By Chris Becker Its all about Brexit – no trouble – overnight with risk markets tentatively moving forward, only Pound Sterling suffering any stress due to Boris’ suspension of Parliament. The USD rose slightly while Treasury yields were relatively stable through a large auction, with the latest DOE oil inventory figures giving oil prices a
A relatively staid session across risk markets here in Asia today following a small blip higher on Wall Street overnight. Only Chinese stocks are in the red with the Shanghai Composite down a handufl of points to be back below 2900 points while the Hang Seng Index has continued its mild retreat, down 10 points
By Chris Becker Risk markets remained unconvinced of any real development in the US/China trade war as Trump gets called out on his bald-faced lies following the G7 meeting. US stocks retreated slightly while the USD is little changed against the majors, as Treasuries firmed across the curve. The latest German GDP was left unrevised
A bit of hope and optimism is sneaking into Asian share markets today following the reversal on Wall Street overnight, although continued protests in Hong Kong are weighing locally. Safe havens are still getting a bid, with gold and Yen both rising while Treasury yields are falling. Chinese stocks have split with the Shanghai Composite taking
By Chris Becker The dead cat bounce had some kittens overnight with the US and China looking to return to the negotiating table before the trade war re-ignites again. Stocks recovered mildly on Wall Street while the USD came back from its slump, as Treasury yields nudged higher again. In economic news, the slump in German
Via Zoltan Pozsar at Credit Suisse: The FOMC should forget about r* for the moment and focus on Sagittarius-A* – the supermassive black hole at the center of global dollar funding markets. The black hole is the foreign RRP facility, which has seen close to $100 billion of inflows since the beginning of the year.
DXY took off last night as EUR lifted and CNY crashed: Bizarrely, the Australian dollar rocketed back up: Gold sagged: Oil too: Metals hung on: Miners were flushed: EM stocks remain at the cliff’s edge: Junk jumped: Yield curves were crushed everywhere: Stocks repaired about half of the damage: Westpac has the wrap: Event Wrap
Not quite a bath of blood, but its been a red day across Asian stock markets in the delayed weekend response to the tremendous selloff on Wall Street on Friday night. Chinese stocks are leading the way down this time with the Shanghai Composite closing 1.2% lower to 2863 points while the Hang Seng Index is off even more,
DXY was smashed Friday night. CNY was not much better. EUR lifted: The Australian dollar was shredded against DMs: EMs were worse: CFTC positioning was unchanged very short last week: Gold hit a new closing high: Oil was hit: Copper broke: Big miners sank: EM stocks too: And junk: All bond were bid: Stocks got
Asian stocks have shrugged off the poor confidence from overnight and are bidding higher going into the weekend close. Chinese stocks are leading the charge with the Shanghai Composite up nearly 0.5% to 2897 while the Hang Seng Index is doing the same, up to 26173 points. Price had been threatening the high moving average on the daily chart, but buyers
By Chris Becker No room for optimism on overseas markets last night as the lack of direction in Asia yesterday translated into mild selling on both sides of the Atlantic. Treasuries sold off slightly while gold retraced on some slightly hawkish Fed comments. Looking at the action on Asian markets yesterday, where Chinese stocks were quite mixed
Stock markets in Asia are oscillating between small losses and tiny gains, with traders looking to the Fed again as it holds it symposium tonight in Wyoming. Chinese stocks are quite mixed with the Shanghai Composite again hovering on another scratch session going into the close, up three points to 2883 while the Hang Seng Index is the
By Chris Becker Some more stability or instability depending on your point of view returned to equity markets overnight with the Fed minutes absorbed without much fuss as no bad macro news equating to higher risk sentiment. Weekly oil inventories were much less than expected, sending Brent higher while WTI crude was stable, as safe
DXY is till at breakout versus a weak EUR and CNY: The King Dollar sat on the Australian dollar but it lifted versus other DMs: EMs were stronger: It’s BTFD for gold: Oil was soft: Metals mixed: Miners weak: EM stocks better: And junk: Treasuries were sold: Bunds more so: Aussie bonds were solid: Stocks
The bounce has deflated here in Asia although Chinese stocks are just holding on to the inversion in risk sentiment overnight with the USD gaining slightly today. The Shanghai Composite is hovering on a scratch session going into the close, currently unchanged at 2877 points while the Hang Seng Index is also unmoved at 26231 points. Price
There’s no iron ore crash. And another thing, there’s NO iron ore crash. So says the Australian dollar today as it rises (as it does every single day in Asia for some reason): Bonds are bid again: As XJO is shellacked: The problem being that there is an ongoing iron ore crash with Dalian swooning: Which is
By Chris Becker The bounce is over! An ounce of disappointment is bringing a pound of pain to stock markets overnight, with both sides of the Atlantic closing at their session lows as Trump states he’s not ready to do a deal with the Chinese over their long running trade dispute. The USD was weak across