The Australian Dollar Fell Through The Landmark 90 US Cent Barrier Today

The Australian currency just broke through the 90 cent mark against the US dollar.

There was a battle raging this morning as traders tried to push the Australian dollar lower after the weekend’s weak Chinese data. But someone – a bank or a hedge fund – was trying to keep it above 90 cents.

A short time ago the Aussie dollar hit 0.8991. The 90c mark has been well and truly breached.

It’s a milestone in the story of the persistently strong Australian currency, and will bring a glimmer of a smile to the face of Australia’s Reserve Bank Governor Glenn Stevens.

Signs of breaking through the resistance point started popping up early last week when the dollar began heading towards its lowest close in four months and the old “buying the dip” strategy didn’t see it recover.

The dollar fell out of step with the 0.9200-0.9500 cent band that it’s been hovering in since late March, trading down to a low of 0.9110.

Australia’s central bank, the RBA, has this year repeatedly described the exchange rate against the US dollar as “uncomfortably high”.

The lower exchange rate makes Australian exports, especially tourism and education, more competitive at a time when the country, and the government, is looking for other sectors to pick up the slack from the end of the country’s China-inspired mining investment boom.

The weaker Aussie dollar was been the story of the week on currency markets last week, especially after the rogue 121,000 employment number released by the ABS on Thursday which had Twitter laughing at its obscurity and the Aussie rising about half a cent back above 0.9200c.

But that didn’t hold long, with Aussie dollar traders acting ruthlessly in Friday morning activity, seeing the dollar taking a battering from the bears. More on that here.

The darling of currency markets is losing its shiny status, much like the iron ore price in the last few months.

Post-GFC the relationship between the Australian and US dollar has been carefully scrutinised.

The Aussie, or the “Battler” as it’s known in the local market, reached parity with the USD in late 2010. For locals it felt like half of Australia jumped on a plane to take advantage of cheaper overseas travel.

The RBA cut rates to almost half-a-century lows that we saw the dollar’s stubborn side, holding above 0.9000 and defying the RBA, falls in commodity prices that are central to Australia’s economy, and the nation’s terms of trade.

While trips to the US were cheaper, the domestic economy started bleeding. Australian exporters, including coal and iron ore miners as well as the country’s manufacturing sector all began blaming the solid dollar for margin squeeze, profitability issues and generally any other bad business result they’d incurred whilst it was on a tear.

The likes of Ford, Holden, Rio Tinto, BHP Billiton and Glencore were among the top tier companies that had since 2010 blamed the climbing dollar on a raft of business changes including shutting operations, shedding jobs or shipping operations offshore.

In July 2011 the Australian dollar did a personal best, recording a high of US1.1080 cents just as the US was in deep political debate about raising its $US14.3 trillion government debt ceiling to avoid defaulting on debt repayments.

The dollar stayed strong and held firm above parity before before RBA Governor Glenn Stevens’ jawboning in 2013 pushed it just below 0.8800 earlier this year. But then the buyers came charging back, once again confounding Stevens, who has felt the need to consistently warn the market that the Aussie was high by historical standards.

Stevens and economists have long argued that a lower Australian dollar would help transition Australia’s reliance on the mining investment boom towards stronger education and tourism.

RBA’s Stevens has long wished for the dollar to return to the mid 80 cent region where he sees it as fair value and with today’s break his wish could soon become reality.

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