Australia’s currency has become a different kind of creature in the past few years, moving from being mostly a commodity play to more of a safe haven. This has been something of a double-edged sword for the country’s monetary policymakers: it helped avoid a big inflationary spike as the mining investment boom was booming; but now that wave is close to peaking, the burdens of having a premium currency are becoming harder to bear. Read more
Strong currencies are the bane of every triple-A rated, QE-less economy in currency war-torn 2013, it seems. It’s become an increasingly irksome point in Australia, where the initial exuberance over cheap foreign holidays has been slowly replaced by worries that it’s squeezing the non-mining sectors.
An FOI request by Bloomberg yielded a bunch of documents from the Reserve Bank of Australia about the currency’s overvaluation problem. Specifically, how bad it is and who’s to blame. Well, who among other central banks*, at least. Here’s list of the definitely-implicated: Read more
The Australian Financial Review is reporting that some central bankers are encouraging the Reserve Bank of Australia to consider heavy intervention rather than cut rates, if it wants to bring down the value of the Australian dollar, which is at its highest in months. Read more
The Reserve Bank of Australia cut its cash rate on Tuesday to 3 per cent — making a total of 175bps worth of cuts since November 2011, and bringing the rate to its lowest level since the depths of the financial crisis.
The RBA’s governor’s statement alluded to the bank’s discomfort over the stubbornly high Australian dollar, which is not doing what it tended to do in the past and falling to provide a fillip to the economy: Read more
A lot of ink has been spilled by various FX strategists over what the Reserve Bank of Australia is or isn’t doing with its FX transactions and whether this is or is not tantamount to printing money. The RBA isn’t ‘printing money’ but it is doing something… or rather, not doing something, as a way of signalling that it doesn’t like the Australian dollar being so strong. They’ve been given the opportunity to do this by a foreign central bank, but that’s neither here nor there. Read on for all the messy details… Read more
As Neil picked up on already there is a suggestion that the Reserve Bank of Australia is practising some ‘passive intervention’ to hamstring the Aussie’s strength a touch.
It’s easy enough to see why this conclusion has been drawn, even as questions abound about China’s demand, its effect on commodity prices which Australia relies s0 heavily upon and the RBA repeatedly cuts still high interest rates the Aussia has stubbornly refused to fall versus the US dollar:
But there is a potential difficulty attaching the label intervention, even ‘passive’, to this build up at so early a stage. Read more
That’s Australian for ‘bad’.
The country’s trade deficit came in far worse than expected: Read more
Australia’s central bank cut its overnight cash rate by 25 bps today, to 3.25 per cent — close to the crisis-level low of 3 per cent.
It’s interesting for several reasons, one of which is that many strategists didn’t see it coming. Read more
That the Australian economy may be in trouble will not be news to FT Alphaville readers.
We’ve been warning for a good while that the country is uniquely exposed to the commodity super-cycle, an overvalued currency, a real-estate bubble, not to mention the Chinese slowdown. Read more
From the Reserve Bank of Australia’s minutes released on Tuesday morning:
The further decline in the euro exchange rate put additional pressure on the Swiss National Bank in maintaining the franc’s peg against the euro to avert deflationary pressures. Members noted that the Swiss National Bank had purchased around €100 billion over May and June, with further sizeable purchases likely to have occurred in July. While some of these purchases were retained in euros, a sizeable share was converted into other currencies, including a modest amount in the Australian dollar. In contrast, members noted that the level of Chinese foreign reserves fell in the June quarter, as capital outflows occurred. Read more
What do you do when your normal, wide avenues are blocked off or are just a bit smelly? You look for the nicest, smaller roads to barrel down. Or, until they widen out, you might just trickle down them where possible.
(This metaphor allows for paths to widen as more people pile down them, btw.) Read more
The Australian dollar has veered away from its usual path. *Bad Aussie.*
But there is a widespread belief it will have to eventually find its way back. How quickly it does so, however, is open to debate. Read more
Australia is rich in iron ore, coal and copper … and its stock of hubris seems to be growing.
After a recent trip to the “quarry in China’s backyard” SocGen’s Dylan Grice is even more worried about its economy than he was beforehand. It seems a book describing Australia’s economic success as “a miracle” was the catalyst (more on that below). In a note to clients Grice is recommending shorting the aussie dollar. And, if you’re lucky enough to be Australian, stockpiling gold. Read more
The IMF’s latest quarterly update on the currency composition of official foreign exchange reserves (COOFER) is out. One person excited by the numbers is Simon Derrick at BNY Mellon.
But not with respect to what they say about the share of global US dollar reserves, but rather what they say about the world’s “other” non-dollar denominated reserves, as well as reserve growth in general. Read more
Well, not if you are short the AUD because of all that hard landing business. Or, if you are an Australian exporter.
The Australian dollar has long been seen as a China/commodities trade, but Macquarie’s Brian Redican reckons that’s no longer the case. The currency is increasingly influenced by external factors, rather than the country’s own ever-growing mining sector, or its monetary and fiscal policy. Read more
$/€ races ahead of $/£, $/¥ and $/SFr, but $/AUD has made a strong run from behind…
Actually, the thing that jumps out from Table 4 of the most recent FX trading survey from London’s Foreign Exchange Joint Standing Committee is that none of the columns — April 2011 thru October 2011 — are ranked consecutively. (Click to enlarge) Read more
The Australian dollar rose to its highest level against the US dollar in five months on Thursday, as figures showed that the country’s trade surplus rose to a record high last year, buoyed by strong commodity exports. The FT reports that Australia’s currency advanced to a fresh five-month high of $1.0756 against the US dollar in early Asian trading. It later pared some of its gains and was flat against the dollar by the close of trading in London. The Japanese yen continued to strengthen against the US dollar after a week of gaining ground. The dollar declined 0.2 per cent to hit a low of Y76.02. Read more
Standard Chartered’s Priyanka Kishor has spotted an interesting new development in correlations.
As has been well documented, since the 2008 crisis, ‘risk off‘ market temperament has strongly coincided with dollar inflows. In short, ‘risk-off’ has equalled ‘dollar positive’. Read more
Traders’ focus turned from the eurozone to China, where GDP data and government efforts to bolster the stock market triggered a 4 per cent surge in Shanghai and a broad rally across Asia, the FT reports. The FTSE All-World equity index was up 0.9 per cent and gold gained 1.3 per cent to $1,665 an ounce. European bourses joined in the fun, with the FTSE Eurofirst 300 adding 0.8 per cent. US equity futures suggested Wall Street’s S&P 500 would greet the opening bell with a 1.1 per cent pop, taking the benchmark above the 1,300 level for the first time since August. There was a broad “risk-on” mindset sweeping dealing desks. Assets that tend to display a high beta to global growth hopes were seeing demand, with the Australian dollar was up 0.9 per cent and copper surged 3 per cent to $3.74 a pound. Read more
Stocks were stretching their losing streak into an eighth session on fresh concerns about stumbling global growth as Chinese data sparked fears of a contraction in manufacturing, and after a US report showed the world’s biggest economy was weaker than expected during the third quarter, the FT reports. The FTSE All-World equity index was down 0.4 per cent and has now shed nearly 7 per cent since November 11. S&P 500 futures suggested Wall Street would lose 0.8 per cent to open at a six-week low, though the FTSE Eurofirst 300 pared early heavy losses to sit down just 0.1 per cent. Although trading was thinning ahead of the US Thanksgiving break on Thursday (and with Japan on holiday today), the mood was most decidedly “risk off”, with growth-focused assets under the cosh. Copper was down 1.4 per cent to $3.29 a pound and Brent crude was lower by 0.9 per cent to $108.05 a barrel. Currencies that tend to display a high beta to risk appetite were attracting sellers. The Australian dollar, which was particularly sensitive to perceptions of future Chinese raw material demand, was down 0.8 per cent to $0.9748, and has now lost more than 7 per cent in November. Read more
Equity markets ended another volatile week with sentiment somewhat soured by worries over politicians’ and monetary guardians’ strategy for dealing with a weak global economy and the eurozone fiscal crisis, the FT reports. The FTSE All-World equity index was down 0.6 per cent following a 0.7 per cent drop for the Asia-Pacific region and as the FTSE Eurofirst 300 declined of 0.7 per cent. S&P 500 futures suggested Wall Street would open flat. Such caution and indecision could be seen across asset classes where mixed signals were being sent on the market’s attitude to risk. So, while the perceived haven of gold was higher, another bolt-hole, US Treasuries were slightly weaker, with benchmark yields up 2 basis points to 2.0 per cent. In commodities, copper was down 0.7 per cent to $4.10 a pound, but Brent crude was up 0.3 per cent to $114.94 a barrel. Currencies were little changed, though the risk aversion in equity markets was seeping into forex with the Aussie dollar paring gains, the US dollar index up 0.1 per cent and the euro down 0.1 per cent to $1.3864 after Thursday’s 1.5 per cent slide. Read more
wailing and gnashing of teeth name-calling and politicking Australia’s minority government on Sunday announced details of its carbon pricing scheme.
Planned for a mid-2012 start, the scheme would initially price CO2 emissions at $23 per tonne, rising 2.5 per cent a year for the first three years, before moving to a market mechanism. It would apply to the top 500 polluters, excluding the agriculture sector and light vehicles. Read more
G3 currencies are just so … démodé.
Where once the US dollar, euro and yen indisputably dominated global currency trading, there are now alternatives. The S3 currencies. So says UBS strategist Syed Mansoor Mohi-uddin in a short note. Read more
How weak is the dollar?
A timely question asked by Goldman Sachs on Tuesday morning, what with the euro reaching a 15-month high of $1.45 earlier today. Indeed, on the face of it, there is weakness everywhere. Read more
Global stocks are challenging cyclical highs as the warm glow from Friday’s strong US jobs data challenge the chill from Middle East turmoil, Japan’s earthquake travails and eurozone fiscal woes, reports the FT’s global market overview. The FTSE All-World equity index was up 0.3 per cent at 228.5, just shy of February’s post-credit crunch closing high of 228.9. US equities struggled for direction, with the S&P 500 adding less than 0.1 per cent to 1,333.25 by mid-session on Wall Street. The Dow Jones Industrial Average rose 0.2 per cent to 12,395.26, while the Nasdaq Composite put on 0.1 per cent to 2,791.12. The Australian dollar rose to a high of $1.0416 against the US dollar, its highest since it was allowed to float freely in 1982, and hit an 11-month peak of Y87.67 against the yen. The dollar also hit a five-month low of $1.4268 against the euro and pulled back from Friday’s six-month peak of Y84.72 against the yen to stand down 0.2 per cent at Y83.90 by midday in New York. Oil prices rose above $120 a barrel for the first time since mid-2008 on Monday as supply disruption in Gabon, compounded continuing losses from Libya. Read more
Hopes that the global economic recovery is sufficiently robust to see off a combination of Japan’s travails, Mideast unrest and eurozone fiscal woes was delivering another positive day for many riskier assets, the FT’s global market overview reports. The FTSE All-World equity index was up 0.1 per cent, the seventh day in a row that the global benchmark has recorded gains, leaving it 5 per cent above last week’s post-Japan earthquake low and just 2 per cent below February’s cyclical high. Sentiment was being bolstered by signs of continuing improvement in the US labour markets and as corporate earnings underpin valuations. Oracle was the latest technology group to deliver solid profits and an upbeat outlook, illustrating its confidence by sharply increasing its dividend. Meanwhile, gauges that signal optimism over the global economy were stuck on green. The Aussie dollar, a so-called commodity currency, was once again flirting with 29 year highs versus its US namesake, on Friday up 0.3 per cent to $1.0241. Read more
Global stock benchmarks are sharply higher as signs of progress at the Fukushima nuclear plant in Japan counteract concerns over the west’s involvement in Libya and a subsequent jump in oil prices, reports the FT. The FTSE All-World equity index is up 1.6 per cent, and the S&P 500 on Wall Street is up 1.5 per cent, having over recent days retraced half of its losses since dropping from the February 18 cyclical peak. The Vix volatility index is down 15 per cent at 20.8 as traders’ anxiety eases. Growth-focused commodity currencies like the Aussie dollar are in demand as investors bet that the global economy’s fundamentals are strong. It is unclear, however, whether Brent crude’s move back above $116 a barrel before settling in late London trading at $114.91 a barrel is the result of hopes that damage to the world’s third-largest economy will not derail the global recovery, or fears that the coalition’s attack on the Libyan government’s military could lead to increased turmoil in the oil producing region. Read more
The repatriation effect on the yen is being closely watched by analysts all over the world following the Tohoku temblor and subsequent Bank of Japan intervention.
As most have commented this is on account of the patterns that followed on from Japan’s Kobe earthquake in 1995, which also saw the yen rise relative to the dollar. Read more
BNY Mellon’s Simon Derrick briefly mentioned the carry trade last week.
This Thursday, the currency strategist is back with more detail Read more