1 00:00:05,880 --> 00:00:07,760 Speaker 1: Welcome to Fear and Greed Q and A, where we 2 00:00:07,800 --> 00:00:12,080 Speaker 1: ask and answer questions about business, investing, economics, politics and more. 3 00:00:12,200 --> 00:00:15,960 Speaker 1: I'm Sean ailmar last week's surprise rise in inflation. It's 4 00:00:15,960 --> 00:00:18,040 Speaker 1: at the Ausie dollar jump against the green back at 5 00:00:18,120 --> 00:00:20,600 Speaker 1: least to be buying more than sixty five US since 6 00:00:20,880 --> 00:00:23,680 Speaker 1: with rates expected to fall in the US and probably 7 00:00:23,720 --> 00:00:26,960 Speaker 1: not change too much in Australia, the local currency should 8 00:00:27,040 --> 00:00:29,120 Speaker 1: receive some support, at least in the short term. Well 9 00:00:29,160 --> 00:00:32,440 Speaker 1: that's the theory. I'm joined today by Ray Aatural, head 10 00:00:32,479 --> 00:00:35,839 Speaker 1: of FX Strategy at National Australia Bank. Ray, welcome back 11 00:00:35,840 --> 00:00:37,159 Speaker 1: to Fear and Greed at Q and A. 12 00:00:37,760 --> 00:00:39,000 Speaker 2: Thanks Sean, nice to be here. 13 00:00:39,520 --> 00:00:41,960 Speaker 1: So what's going on with the Aussie I mean, is 14 00:00:42,000 --> 00:00:45,760 Speaker 1: it broadly? I want to come to what drives the 15 00:00:45,840 --> 00:00:51,120 Speaker 1: currency but longer term, but just short term. It's reasonably 16 00:00:51,240 --> 00:00:54,240 Speaker 1: stable at the moment. But their rates must make a difference. 17 00:00:54,400 --> 00:00:56,840 Speaker 2: Yes they do. But we say reasonably, I'd say it's 18 00:00:56,840 --> 00:00:59,400 Speaker 2: been incredibly stable. I've just been looking at the Aussie 19 00:00:59,400 --> 00:01:03,360 Speaker 2: dollars before over the whole of November, and the Aussie 20 00:01:03,360 --> 00:01:06,520 Speaker 2: dollar finished the month at exactly where it started, sixty 21 00:01:06,520 --> 00:01:09,440 Speaker 2: five and a half cent, So it's not been the 22 00:01:09,480 --> 00:01:12,600 Speaker 2: most exciting time for a currency strategist to be making 23 00:01:12,680 --> 00:01:15,560 Speaker 2: sense of the world. But really an answer to your question, 24 00:01:16,319 --> 00:01:18,520 Speaker 2: we have strengthened in the last sort of week or 25 00:01:18,520 --> 00:01:21,080 Speaker 2: two and a big part of the story there certainly 26 00:01:21,200 --> 00:01:24,200 Speaker 2: is the shift in thinking about interest rates, so we 27 00:01:24,240 --> 00:01:27,679 Speaker 2: think about, you know, key drivers of Aussie not just 28 00:01:27,720 --> 00:01:31,920 Speaker 2: against the US dollar but any currency. What interest rates 29 00:01:31,959 --> 00:01:34,680 Speaker 2: are doing and expected to do here relative to the 30 00:01:34,720 --> 00:01:37,600 Speaker 2: rest of the world is a really really important driver. 31 00:01:37,720 --> 00:01:41,000 Speaker 2: And obviously since the inflation news that we've had both 32 00:01:41,000 --> 00:01:44,600 Speaker 2: in the third quarter, but also the October monthly print 33 00:01:44,640 --> 00:01:46,959 Speaker 2: that we got a little while ago, that's caused a 34 00:01:46,959 --> 00:01:50,360 Speaker 2: real sea change in attitudes towards the prospect of any 35 00:01:50,400 --> 00:01:53,920 Speaker 2: further RBA rate reductions. And now of course markets are 36 00:01:53,960 --> 00:01:57,240 Speaker 2: flirting with the idea that we could be in for 37 00:01:57,480 --> 00:02:01,480 Speaker 2: intrast rate hike hikes. I use the word plural potentially, 38 00:02:02,360 --> 00:02:05,400 Speaker 2: you know, depending on particularly how that inflation data plays 39 00:02:05,400 --> 00:02:09,240 Speaker 2: out in the coming months. So it certainly lifted those differentials, 40 00:02:09,280 --> 00:02:11,959 Speaker 2: whether you're talking about bond yields you know five or 41 00:02:12,000 --> 00:02:16,079 Speaker 2: ten years down the track, or you know, relative expectations 42 00:02:16,080 --> 00:02:18,840 Speaker 2: for what the RBA might be doing relative to the FED. 43 00:02:19,440 --> 00:02:21,440 Speaker 2: There's been a pretty decisive move there, and I think 44 00:02:21,440 --> 00:02:23,800 Speaker 2: that's why we sort of move from the bottom to 45 00:02:23,880 --> 00:02:26,119 Speaker 2: the top of that meager range in the last week 46 00:02:26,240 --> 00:02:26,359 Speaker 2: or so. 47 00:02:27,919 --> 00:02:30,800 Speaker 1: What about in the longer term or meaning to longer term, 48 00:02:31,160 --> 00:02:33,520 Speaker 1: it's not going to be interest rate differentials, presumably because 49 00:02:33,520 --> 00:02:36,000 Speaker 1: there are cycles. I mean, are we still a commodity 50 00:02:36,040 --> 00:02:39,080 Speaker 1: currency fundamentally, and you know, so commodity prices go up 51 00:02:39,120 --> 00:02:41,400 Speaker 1: at least dian or goes up, good for US and 52 00:02:41,480 --> 00:02:42,040 Speaker 1: vice versa. 53 00:02:42,600 --> 00:02:45,320 Speaker 2: Well, certainly in theory that should be the case. Let's 54 00:02:45,360 --> 00:02:48,600 Speaker 2: forget remember we are a small, very open economy, very 55 00:02:48,639 --> 00:02:52,880 Speaker 2: exposed to global demand, and typically that shows up when 56 00:02:52,919 --> 00:02:56,080 Speaker 2: the global economy is doing well. You know, demand for 57 00:02:56,280 --> 00:02:59,160 Speaker 2: resources is strong and Australia will tend to benefit from 58 00:02:59,240 --> 00:03:02,760 Speaker 2: higher prices. But actually, in recent years, in fact, going 59 00:03:02,800 --> 00:03:06,280 Speaker 2: back to a little while before COVID, the relationship between 60 00:03:06,440 --> 00:03:09,839 Speaker 2: commodity prices as they impact Australia, whether that's iron ore 61 00:03:09,919 --> 00:03:13,639 Speaker 2: or gas or coal or goal for that matter, hasn't 62 00:03:13,720 --> 00:03:17,839 Speaker 2: really correlated particularly well with the currency. And our sort 63 00:03:17,840 --> 00:03:20,280 Speaker 2: of explanation is a lot of the commodity price strength 64 00:03:20,320 --> 00:03:22,560 Speaker 2: that we've seen in the last four or five years 65 00:03:22,960 --> 00:03:25,840 Speaker 2: has been driven as much by kind of supply shocks. 66 00:03:26,000 --> 00:03:28,760 Speaker 2: You know, think about COVID and supply disruptions, think about 67 00:03:28,960 --> 00:03:32,640 Speaker 2: Russia's invasion of Ukraine and what that's done to oil 68 00:03:32,680 --> 00:03:35,720 Speaker 2: and gas, for example. So the strength that we've seen 69 00:03:35,760 --> 00:03:39,600 Speaker 2: in commodities hasn't necessarily been symptomatic of a strong global economy, 70 00:03:39,640 --> 00:03:42,119 Speaker 2: and in fact, the global economy for the last three 71 00:03:42,160 --> 00:03:44,840 Speaker 2: years has actually been growing a little bit below its potential, 72 00:03:44,880 --> 00:03:47,800 Speaker 2: sort of sub three percent. So you know, when you've 73 00:03:47,800 --> 00:03:51,800 Speaker 2: got strong commodity prices but a weaker global economic backdrop, 74 00:03:51,960 --> 00:03:55,080 Speaker 2: what we've found is that actually the Aussie dollar tends 75 00:03:55,120 --> 00:03:58,120 Speaker 2: to follow the global growth story more closely than it 76 00:03:58,160 --> 00:04:02,480 Speaker 2: follows the commodity price story. Historically, you know, strong global 77 00:04:02,600 --> 00:04:05,520 Speaker 2: commodity prices have been synonymous with a strong global economy, 78 00:04:05,560 --> 00:04:07,920 Speaker 2: and so the two things have been working in a 79 00:04:07,960 --> 00:04:11,440 Speaker 2: positive direction. But we've really had that divergence. So you know, 80 00:04:11,600 --> 00:04:15,280 Speaker 2: interesstrate differentials are probably playing a bigger role perhaps than 81 00:04:15,320 --> 00:04:18,200 Speaker 2: they have done. And then, of course, whenever you know, 82 00:04:18,560 --> 00:04:21,520 Speaker 2: bad things happen in markets and risk sentiments hours as 83 00:04:21,520 --> 00:04:24,599 Speaker 2: we saw sort of back in mid November. You know, 84 00:04:24,600 --> 00:04:26,919 Speaker 2: the Aussie dollar is always the whipping boy. It's the 85 00:04:26,960 --> 00:04:29,800 Speaker 2: currency that financial markets love to sell. 86 00:04:30,520 --> 00:04:33,119 Speaker 1: Yeah, I don't quite understand that. I mean, we've actually 87 00:04:33,120 --> 00:04:36,200 Speaker 1: got a pretty solid economy. We've seen a flight to 88 00:04:36,480 --> 00:04:39,599 Speaker 1: Commonwealth Bank for example, that's benefited on the fight to 89 00:04:39,680 --> 00:04:43,839 Speaker 1: quality argument, the anti US argument. Some of our local 90 00:04:43,920 --> 00:04:45,760 Speaker 1: stocks come Wealth Bank being the obvious one, have done 91 00:04:45,839 --> 00:04:48,359 Speaker 1: pretty well out of all that. I don't quite understand 92 00:04:48,360 --> 00:04:49,400 Speaker 1: while we get sold off. 93 00:04:51,480 --> 00:04:55,040 Speaker 2: Yes on, it is a little bit of a puzzle 94 00:04:55,080 --> 00:04:56,520 Speaker 2: at times. But I think the way that you have 95 00:04:56,600 --> 00:04:58,600 Speaker 2: to think about it in sort of big picture terms 96 00:04:58,680 --> 00:05:02,840 Speaker 2: is that Australia, you know, for all its economic virtues 97 00:05:02,920 --> 00:05:07,120 Speaker 2: and strong economic performance and relative interest rate support, is 98 00:05:07,160 --> 00:05:08,800 Speaker 2: still a country that owes a lot of money to 99 00:05:08,839 --> 00:05:11,000 Speaker 2: the rest of the world. So we are Australia is 100 00:05:11,040 --> 00:05:14,560 Speaker 2: still in hock to foreign investors who have been funding 101 00:05:14,680 --> 00:05:19,400 Speaker 2: our deficits, whether that's government deficits or the financial sector 102 00:05:19,560 --> 00:05:22,880 Speaker 2: or companies raising finance. So we owe the rest of 103 00:05:22,880 --> 00:05:26,039 Speaker 2: the world about seven hundred billion dollars more than the 104 00:05:26,080 --> 00:05:28,919 Speaker 2: rest of the world owes us ethically. And when you 105 00:05:29,040 --> 00:05:32,800 Speaker 2: do see these sort of periodic flights to if you 106 00:05:32,920 --> 00:05:35,360 Speaker 2: like flights to safety. What happens is those countries that 107 00:05:35,440 --> 00:05:39,000 Speaker 2: have got big pools of savings held outside their own country, 108 00:05:39,279 --> 00:05:42,279 Speaker 2: and Japan and Switzerland, and traditionally that the two best 109 00:05:42,320 --> 00:05:45,280 Speaker 2: examples of that money tends to come home to be 110 00:05:45,440 --> 00:05:48,040 Speaker 2: to sort of be parked under the proverbial matress. If 111 00:05:48,040 --> 00:05:51,960 Speaker 2: you like, investors worry about the return of capital rather 112 00:05:52,000 --> 00:05:55,440 Speaker 2: than necessarily the return on capital. And so the currencies 113 00:05:55,480 --> 00:05:59,000 Speaker 2: of countries that you know, where people may pull money 114 00:05:59,040 --> 00:06:01,520 Speaker 2: out and bring it back to home, chores tend to 115 00:06:01,520 --> 00:06:04,320 Speaker 2: see their currencies weakening. So we're not in as big 116 00:06:04,360 --> 00:06:07,160 Speaker 2: a debted position as we were a decade or so ago, 117 00:06:07,240 --> 00:06:09,920 Speaker 2: and a lot of those because the superannuation funds here 118 00:06:09,920 --> 00:06:12,640 Speaker 2: have been putting so much money abroad and acquiring financial 119 00:06:12,680 --> 00:06:15,960 Speaker 2: assets from other countries. But it's still the case that 120 00:06:16,000 --> 00:06:21,200 Speaker 2: we are a debtor, and say when market risk sentiments ours, 121 00:06:21,240 --> 00:06:24,000 Speaker 2: the Aussie inevitably suffers, and it always becomes a self 122 00:06:24,040 --> 00:06:26,520 Speaker 2: fulfilling prophecy. If you're a trainer in a bank or 123 00:06:26,760 --> 00:06:28,599 Speaker 2: a hedge fund and you say, well, every time something 124 00:06:28,640 --> 00:06:31,200 Speaker 2: bad happens, I sell Aussie dollars and I make money, 125 00:06:31,320 --> 00:06:35,960 Speaker 2: so almost sometimes for no rhyme nor great reason. It's 126 00:06:36,000 --> 00:06:38,599 Speaker 2: sort of it's an ongoing phenomenon, if you like. 127 00:06:38,920 --> 00:06:41,400 Speaker 1: What about away from the US dollar now on a 128 00:06:41,440 --> 00:06:44,880 Speaker 1: twy basis, I know, in normal terms at least, we're 129 00:06:44,960 --> 00:06:47,960 Speaker 1: kind of trading around twenty year flows. I mean, there's 130 00:06:47,960 --> 00:06:49,839 Speaker 1: been a few times have dropped below it, but broadly 131 00:06:49,880 --> 00:06:52,960 Speaker 1: we're you know, around twenty yuloaders and normal terms on 132 00:06:53,000 --> 00:06:55,560 Speaker 1: a twy twy of course, being a measure of the 133 00:06:55,640 --> 00:06:58,960 Speaker 1: currency versus the currencies of the countries we trade with. 134 00:07:00,320 --> 00:07:03,320 Speaker 1: Is that sort of fit into the global growth story there? 135 00:07:03,520 --> 00:07:05,400 Speaker 1: Or why are we doing so poorly against some of 136 00:07:05,400 --> 00:07:06,240 Speaker 1: the other currencies? 137 00:07:06,520 --> 00:07:08,479 Speaker 2: Yeah, I think it does to some extent so, and 138 00:07:08,560 --> 00:07:10,200 Speaker 2: it tends to be the case. You know, if Ossie's 139 00:07:10,200 --> 00:07:13,000 Speaker 2: doing badly against the US dollar for whatever reason, it 140 00:07:13,040 --> 00:07:16,360 Speaker 2: also tends to be trading in a similar way effectively. 141 00:07:16,400 --> 00:07:18,679 Speaker 2: Although it's been you know, it's been pretty choppy again 142 00:07:18,760 --> 00:07:23,120 Speaker 2: in sort of relatively broad ranges. You know, the sense 143 00:07:23,240 --> 00:07:25,120 Speaker 2: is that you know, it is it is pretty low. 144 00:07:25,160 --> 00:07:27,960 Speaker 2: But if that interest rate story takes a firmer hold, 145 00:07:27,960 --> 00:07:30,760 Speaker 2: I think on investor attitudes and you know, bearing in 146 00:07:30,840 --> 00:07:34,000 Speaker 2: mind that, you know, if the outlook is for lower 147 00:07:34,040 --> 00:07:36,760 Speaker 2: rates in the US, it's probably lower rates in the UK. 148 00:07:37,320 --> 00:07:39,360 Speaker 2: If rates are going anywhere in the rest of Europe, 149 00:07:39,400 --> 00:07:42,960 Speaker 2: they're probably going down. Then you know ultimately that that 150 00:07:43,080 --> 00:07:45,760 Speaker 2: interest rates story should be supportive. But we do need 151 00:07:45,800 --> 00:07:48,440 Speaker 2: to see, you know, a bit more confidence, if you like, 152 00:07:48,520 --> 00:07:51,320 Speaker 2: in the outlook for the global economy. I think for 153 00:07:51,800 --> 00:07:54,480 Speaker 2: you know, to ossie be appreciating not just against the 154 00:07:54,600 --> 00:07:57,520 Speaker 2: US dollar, but against those other currencies that make up 155 00:07:57,560 --> 00:07:58,240 Speaker 2: that basket. 156 00:07:58,960 --> 00:08:01,760 Speaker 1: Okay, if I'm a business thinking about selling overseas, perhaps 157 00:08:01,800 --> 00:08:04,440 Speaker 1: buying some piece of equipment to bring into the country, 158 00:08:04,680 --> 00:08:06,120 Speaker 1: maybe I just want to go on holidays at the 159 00:08:06,160 --> 00:08:08,960 Speaker 1: end of the year, so the focus is not twelve 160 00:08:09,000 --> 00:08:13,040 Speaker 1: months time from now. It was a green span that 161 00:08:13,040 --> 00:08:14,520 Speaker 1: said you flip a coin when you're trying and work 162 00:08:14,560 --> 00:08:16,320 Speaker 1: out which way a currency is going, or something along 163 00:08:16,360 --> 00:08:18,280 Speaker 1: those lines. But I'm putting you on the spot right 164 00:08:18,440 --> 00:08:19,000 Speaker 1: in the spot. 165 00:08:19,160 --> 00:08:23,800 Speaker 2: Well, our forecasts are for oussie to be stronger, not dramatically. 166 00:08:23,840 --> 00:08:26,720 Speaker 2: So now a lot of that is contingent on the 167 00:08:26,840 --> 00:08:30,440 Speaker 2: US dollar starting to depreciate. It's obviously spent four or 168 00:08:30,480 --> 00:08:34,280 Speaker 2: five months now sort of defying the naysayers, and part 169 00:08:34,280 --> 00:08:36,600 Speaker 2: of the reason for that is that this concept of 170 00:08:36,760 --> 00:08:42,040 Speaker 2: US economic exceptionalism just doesn't seem to be reversing. You know, 171 00:08:42,080 --> 00:08:44,280 Speaker 2: the economy still looks to be out performing the rest 172 00:08:44,320 --> 00:08:46,720 Speaker 2: of the world, and so to have a negative view 173 00:08:46,760 --> 00:08:49,480 Speaker 2: on the US dollar, which would probably propel the Aussie 174 00:08:49,559 --> 00:08:52,760 Speaker 2: higher against all currencies, you really need to see that 175 00:08:52,800 --> 00:08:55,880 Speaker 2: sort of loss of exceptionalism. Now that may well materialize 176 00:08:55,880 --> 00:08:58,439 Speaker 2: as we go through. We've got signs of cracks obviously 177 00:08:58,440 --> 00:09:01,600 Speaker 2: appearing in the US labor market with unemployment picking up, 178 00:09:01,640 --> 00:09:04,360 Speaker 2: but because of things like the sheer scale of the 179 00:09:04,400 --> 00:09:09,160 Speaker 2: capital capex that's going on, particularly amongst the so called hyperscalers, 180 00:09:09,520 --> 00:09:12,160 Speaker 2: you know, it looks like the economy is probably outperformed 181 00:09:12,320 --> 00:09:14,360 Speaker 2: just about every other economy in the world. And on 182 00:09:14,400 --> 00:09:16,800 Speaker 2: that basis, you know, it's hard to see the US 183 00:09:16,880 --> 00:09:20,200 Speaker 2: dollar coming too much harm and less or until that changes. 184 00:09:20,320 --> 00:09:23,240 Speaker 2: So you know, our expectation is that, you know, the 185 00:09:23,320 --> 00:09:25,959 Speaker 2: labor market will drive policy. There are big question marks 186 00:09:25,960 --> 00:09:28,800 Speaker 2: over just how credible the FED will be under a 187 00:09:28,800 --> 00:09:32,600 Speaker 2: new chair that we should learn the who that will 188 00:09:32,600 --> 00:09:34,760 Speaker 2: be in the coming weeks, for example, So if it 189 00:09:34,800 --> 00:09:37,440 Speaker 2: is the case that we see perhaps the Fed's there's 190 00:09:37,440 --> 00:09:40,600 Speaker 2: more inclined to be cutting rates or perhaps more aggressively 191 00:09:40,600 --> 00:09:42,760 Speaker 2: than might otherwise be the case. We think that certainly 192 00:09:42,800 --> 00:09:45,240 Speaker 2: has the potential to undermine the dollar. So we're in 193 00:09:45,280 --> 00:09:47,840 Speaker 2: our forecast. We've got oz against whether it's against the pound, 194 00:09:47,880 --> 00:09:51,079 Speaker 2: whether it's against the Euro, whether it's against the US dollar, 195 00:09:51,280 --> 00:09:54,600 Speaker 2: all looking stronger in twelve months time than they do today. 196 00:09:55,280 --> 00:09:57,800 Speaker 1: Right. Thank you for talking to Fear and Greed Pleasure. 197 00:09:57,800 --> 00:10:00,560 Speaker 1: Thanks Sean, it was veryatural head of if IT strategy 198 00:10:00,640 --> 00:10:03,200 Speaker 1: at National Australia Bank. If you've got something you'd like 199 00:10:03,240 --> 00:10:06,000 Speaker 1: to notice, an through your question via LinkedIn, Instagram, Facebook 200 00:10:06,080 --> 00:10:08,240 Speaker 1: or at Fearangreed dot com dot au. I'm sure I 201 00:10:08,280 --> 00:10:10,280 Speaker 1: all this is Fear and Greed Q and A