December 1, 2025 • 10 mins
The Aussie dollar has been oddly steady, but interest rate expectations are starting to shake things up.
NAB’s Ray Attrill explains to Sean Aylmer why commodities no longer drive the currency, and what needs to happen for the dollar to rise.
Find out more: https://fearandgreed.com.au/
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
Welcome to Fear and Greed Q and A, where we
ask and answer questions about business, investing, economics, politics and more.
I'm Sean ailmar last week's surprise rise in inflation. It's
at the Ausie dollar jump against the green back at
least to be buying more than sixty five US since
with rates expected to fall in the US and probably
not change too much in Australia, the local currency should
(00:27):
receive some support, at least in the short term. Well
that's the theory. I'm joined today by Ray Aatural, head
of FX Strategy at National Australia Bank. Ray, welcome back
to Fear and Greed at Q and A.
Speaker 2 (00:37):
Thanks Sean, nice to be here.
Speaker 1 (00:39):
So what's going on with the Aussie I mean, is
it broadly? I want to come to what drives the
currency but longer term, but just short term. It's reasonably
stable at the moment. But their rates must make a difference.
Speaker 2 (00:54):
Yes they do. But we say reasonably, I'd say it's
been incredibly stable. I've just been looking at the Aussie
dollars before over the whole of November, and the Aussie
dollar finished the month at exactly where it started, sixty
five and a half cent, So it's not been the
most exciting time for a currency strategist to be making
sense of the world. But really an answer to your question,
(01:16):
we have strengthened in the last sort of week or
two and a big part of the story there certainly
is the shift in thinking about interest rates, so we
think about, you know, key drivers of Aussie not just
against the US dollar but any currency. What interest rates
are doing and expected to do here relative to the
rest of the world is a really really important driver.
(01:37):
And obviously since the inflation news that we've had both
in the third quarter, but also the October monthly print
that we got a little while ago, that's caused a
real sea change in attitudes towards the prospect of any
further RBA rate reductions. And now of course markets are
flirting with the idea that we could be in for
intrast rate hike hikes. I use the word plural potentially,
(02:02):
you know, depending on particularly how that inflation data plays
out in the coming months. So it certainly lifted those differentials,
whether you're talking about bond yields you know five or
ten years down the track, or you know, relative expectations
for what the RBA might be doing relative to the FED.
There's been a pretty decisive move there, and I think
that's why we sort of move from the bottom to
(02:23):
the top of that meager range in the last week
or so.
Speaker 1 (02:27):
What about in the longer term or meaning to longer term,
it's not going to be interest rate differentials, presumably because
there are cycles. I mean, are we still a commodity
currency fundamentally, and you know, so commodity prices go up
at least dian or goes up, good for US and
vice versa.
Speaker 2 (02:42):
Well, certainly in theory that should be the case. Let's
forget remember we are a small, very open economy, very
exposed to global demand, and typically that shows up when
the global economy is doing well. You know, demand for
resources is strong and Australia will tend to benefit from
higher prices. But actually, in recent years, in fact, going
(03:02):
back to a little while before COVID, the relationship between
commodity prices as they impact Australia, whether that's iron ore
or gas or coal or goal for that matter, hasn't
really correlated particularly well with the currency. And our sort
of explanation is a lot of the commodity price strength
that we've seen in the last four or five years
(03:22):
has been driven as much by kind of supply shocks.
You know, think about COVID and supply disruptions, think about
Russia's invasion of Ukraine and what that's done to oil
and gas, for example. So the strength that we've seen
in commodities hasn't necessarily been symptomatic of a strong global economy,
and in fact, the global economy for the last three
years has actually been growing a little bit below its potential,
(03:44):
sort of sub three percent. So you know, when you've
got strong commodity prices but a weaker global economic backdrop,
what we've found is that actually the Aussie dollar tends
to follow the global growth story more closely than it
follows the commodity price story. Historically, you know, strong global
commodity prices have been synonymous with a strong global economy,
(04:05):
and so the two things have been working in a
positive direction. But we've really had that divergence. So you know,
interesstrate differentials are probably playing a bigger role perhaps than
they have done. And then, of course, whenever you know,
bad things happen in markets and risk sentiments hours as
we saw sort of back in mid November. You know,
the Aussie dollar is always the whipping boy. It's the
(04:26):
currency that financial markets love to sell.
Speaker 1 (04:30):
Yeah, I don't quite understand that. I mean, we've actually
got a pretty solid economy. We've seen a flight to
Commonwealth Bank for example, that's benefited on the fight to
quality argument, the anti US argument. Some of our local
stocks come Wealth Bank being the obvious one, have done
pretty well out of all that. I don't quite understand
while we get sold off.
Speaker 2 (04:51):
Yes on, it is a little bit of a puzzle
at times. But I think the way that you have
to think about it in sort of big picture terms
is that Australia, you know, for all its economic virtues
and strong economic performance and relative interest rate support, is
still a country that owes a lot of money to
the rest of the world. So we are Australia is
still in hock to foreign investors who have been funding
(05:14):
our deficits, whether that's government deficits or the financial sector
or companies raising finance. So we owe the rest of
the world about seven hundred billion dollars more than the
rest of the world owes us ethically. And when you
do see these sort of periodic flights to if you
like flights to safety. What happens is those countries that
(05:35):
have got big pools of savings held outside their own country,
and Japan and Switzerland, and traditionally that the two best
examples of that money tends to come home to be
to sort of be parked under the proverbial matress. If
you like, investors worry about the return of capital rather
than necessarily the return on capital. And so the currencies
(05:55):
of countries that you know, where people may pull money
out and bring it back to home, chores tend to
see their currencies weakening. So we're not in as big
a debted position as we were a decade or so ago,
and a lot of those because the superannuation funds here
have been putting so much money abroad and acquiring financial
assets from other countries. But it's still the case that
(06:16):
we are a debtor, and say when market risk sentiments ours,
the Aussie inevitably suffers, and it always becomes a self
fulfilling prophecy. If you're a trainer in a bank or
a hedge fund and you say, well, every time something
bad happens, I sell Aussie dollars and I make money,
so almost sometimes for no rhyme nor great reason. It's
sort of it's an ongoing phenomenon, if you like.
Speaker 1 (06:38):
What about away from the US dollar now on a
twy basis, I know, in normal terms at least, we're
kind of trading around twenty year flows. I mean, there's
been a few times have dropped below it, but broadly
we're you know, around twenty yuloaders and normal terms on
a twy twy of course, being a measure of the
currency versus the currencies of the countries we trade with.
(07:00):
Is that sort of fit into the global growth story there?
Or why are we doing so poorly against some of
the other currencies?
Speaker 2 (07:06):
Yeah, I think it does to some extent so, and
it tends to be the case. You know, if Ossie's
doing badly against the US dollar for whatever reason, it
also tends to be trading in a similar way effectively.
Although it's been you know, it's been pretty choppy again
in sort of relatively broad ranges. You know, the sense
is that you know, it is it is pretty low.
But if that interest rate story takes a firmer hold,
(07:27):
I think on investor attitudes and you know, bearing in
mind that, you know, if the outlook is for lower
rates in the US, it's probably lower rates in the UK.
If rates are going anywhere in the rest of Europe,
they're probably going down. Then you know ultimately that that
interest rates story should be supportive. But we do need
to see, you know, a bit more confidence, if you like,
(07:48):
in the outlook for the global economy. I think for
you know, to ossie be appreciating not just against the
US dollar, but against those other currencies that make up
that basket.
Speaker 1 (07:58):
Okay, if I'm a business thinking about selling overseas, perhaps
buying some piece of equipment to bring into the country,
maybe I just want to go on holidays at the
end of the year, so the focus is not twelve
months time from now. It was a green span that
said you flip a coin when you're trying and work
out which way a currency is going, or something along
those lines. But I'm putting you on the spot right
in the spot.
Speaker 2 (08:19):
Well, our forecasts are for oussie to be stronger, not dramatically.
So now a lot of that is contingent on the
US dollar starting to depreciate. It's obviously spent four or
five months now sort of defying the naysayers, and part
of the reason for that is that this concept of
US economic exceptionalism just doesn't seem to be reversing. You know,
(08:42):
the economy still looks to be out performing the rest
of the world, and so to have a negative view
on the US dollar, which would probably propel the Aussie
higher against all currencies, you really need to see that
sort of loss of exceptionalism. Now that may well materialize
as we go through. We've got signs of cracks obviously
appearing in the US labor market with unemployment picking up,
but because of things like the sheer scale of the
(09:04):
capital capex that's going on, particularly amongst the so called hyperscalers,
you know, it looks like the economy is probably outperformed
just about every other economy in the world. And on
that basis, you know, it's hard to see the US
dollar coming too much harm and less or until that changes.
So you know, our expectation is that, you know, the
labor market will drive policy. There are big question marks
(09:25):
over just how credible the FED will be under a
new chair that we should learn the who that will
be in the coming weeks, for example, So if it
is the case that we see perhaps the Fed's there's
more inclined to be cutting rates or perhaps more aggressively
than might otherwise be the case. We think that certainly
has the potential to undermine the dollar. So we're in
our forecast. We've got oz against whether it's against the pound,
(09:47):
whether it's against the Euro, whether it's against the US dollar,
all looking stronger in twelve months time than they do today.
Speaker 1 (09:55):
Right. Thank you for talking to Fear and Greed Pleasure.
Thanks Sean, it was veryatural head of if IT strategy
at National Australia Bank. If you've got something you'd like
to notice, an through your question via LinkedIn, Instagram, Facebook
or at Fearangreed dot com dot au. I'm sure I
all this is Fear and Greed Q and A
Welcome to Fear and Greed Q and A, where we
ask and answer questions about business, investing, economics, politics and more.
I'm Sean ailmar last week's surprise rise in inflation. It's
at the Ausie dollar jump against the green back at
least to be buying more than sixty five US since
with rates expected to fall in the US and probably
not change too much in Australia, the local currency should
(00:27):
receive some support, at least in the short term. Well
that's the theory. I'm joined today by Ray Aatural, head
of FX Strategy at National Australia Bank. Ray, welcome back
to Fear and Greed at Q and A.
Speaker 2 (00:37):
Thanks Sean, nice to be here.
Speaker 1 (00:39):
So what's going on with the Aussie I mean, is
it broadly? I want to come to what drives the
currency but longer term, but just short term. It's reasonably
stable at the moment. But their rates must make a difference.
Speaker 2 (00:54):
Yes they do. But we say reasonably, I'd say it's
been incredibly stable. I've just been looking at the Aussie
dollars before over the whole of November, and the Aussie
dollar finished the month at exactly where it started, sixty
five and a half cent, So it's not been the
most exciting time for a currency strategist to be making
sense of the world. But really an answer to your question,
(01:16):
we have strengthened in the last sort of week or
two and a big part of the story there certainly
is the shift in thinking about interest rates, so we
think about, you know, key drivers of Aussie not just
against the US dollar but any currency. What interest rates
are doing and expected to do here relative to the
rest of the world is a really really important driver.
(01:37):
And obviously since the inflation news that we've had both
in the third quarter, but also the October monthly print
that we got a little while ago, that's caused a
real sea change in attitudes towards the prospect of any
further RBA rate reductions. And now of course markets are
flirting with the idea that we could be in for
intrast rate hike hikes. I use the word plural potentially,
(02:02):
you know, depending on particularly how that inflation data plays
out in the coming months. So it certainly lifted those differentials,
whether you're talking about bond yields you know five or
ten years down the track, or you know, relative expectations
for what the RBA might be doing relative to the FED.
There's been a pretty decisive move there, and I think
that's why we sort of move from the bottom to
(02:23):
the top of that meager range in the last week
or so.
Speaker 1 (02:27):
What about in the longer term or meaning to longer term,
it's not going to be interest rate differentials, presumably because
there are cycles. I mean, are we still a commodity
currency fundamentally, and you know, so commodity prices go up
at least dian or goes up, good for US and
vice versa.
Speaker 2 (02:42):
Well, certainly in theory that should be the case. Let's
forget remember we are a small, very open economy, very
exposed to global demand, and typically that shows up when
the global economy is doing well. You know, demand for
resources is strong and Australia will tend to benefit from
higher prices. But actually, in recent years, in fact, going
(03:02):
back to a little while before COVID, the relationship between
commodity prices as they impact Australia, whether that's iron ore
or gas or coal or goal for that matter, hasn't
really correlated particularly well with the currency. And our sort
of explanation is a lot of the commodity price strength
that we've seen in the last four or five years
(03:22):
has been driven as much by kind of supply shocks.
You know, think about COVID and supply disruptions, think about
Russia's invasion of Ukraine and what that's done to oil
and gas, for example. So the strength that we've seen
in commodities hasn't necessarily been symptomatic of a strong global economy,
and in fact, the global economy for the last three
years has actually been growing a little bit below its potential,
(03:44):
sort of sub three percent. So you know, when you've
got strong commodity prices but a weaker global economic backdrop,
what we've found is that actually the Aussie dollar tends
to follow the global growth story more closely than it
follows the commodity price story. Historically, you know, strong global
commodity prices have been synonymous with a strong global economy,
(04:05):
and so the two things have been working in a
positive direction. But we've really had that divergence. So you know,
interesstrate differentials are probably playing a bigger role perhaps than
they have done. And then, of course, whenever you know,
bad things happen in markets and risk sentiments hours as
we saw sort of back in mid November. You know,
the Aussie dollar is always the whipping boy. It's the
(04:26):
currency that financial markets love to sell.
Speaker 1 (04:30):
Yeah, I don't quite understand that. I mean, we've actually
got a pretty solid economy. We've seen a flight to
Commonwealth Bank for example, that's benefited on the fight to
quality argument, the anti US argument. Some of our local
stocks come Wealth Bank being the obvious one, have done
pretty well out of all that. I don't quite understand
while we get sold off.
Speaker 2 (04:51):
Yes on, it is a little bit of a puzzle
at times. But I think the way that you have
to think about it in sort of big picture terms
is that Australia, you know, for all its economic virtues
and strong economic performance and relative interest rate support, is
still a country that owes a lot of money to
the rest of the world. So we are Australia is
still in hock to foreign investors who have been funding
(05:14):
our deficits, whether that's government deficits or the financial sector
or companies raising finance. So we owe the rest of
the world about seven hundred billion dollars more than the
rest of the world owes us ethically. And when you
do see these sort of periodic flights to if you
like flights to safety. What happens is those countries that
(05:35):
have got big pools of savings held outside their own country,
and Japan and Switzerland, and traditionally that the two best
examples of that money tends to come home to be
to sort of be parked under the proverbial matress. If
you like, investors worry about the return of capital rather
than necessarily the return on capital. And so the currencies
(05:55):
of countries that you know, where people may pull money
out and bring it back to home, chores tend to
see their currencies weakening. So we're not in as big
a debted position as we were a decade or so ago,
and a lot of those because the superannuation funds here
have been putting so much money abroad and acquiring financial
assets from other countries. But it's still the case that
(06:16):
we are a debtor, and say when market risk sentiments ours,
the Aussie inevitably suffers, and it always becomes a self
fulfilling prophecy. If you're a trainer in a bank or
a hedge fund and you say, well, every time something
bad happens, I sell Aussie dollars and I make money,
so almost sometimes for no rhyme nor great reason. It's
sort of it's an ongoing phenomenon, if you like.
Speaker 1 (06:38):
What about away from the US dollar now on a
twy basis, I know, in normal terms at least, we're
kind of trading around twenty year flows. I mean, there's
been a few times have dropped below it, but broadly
we're you know, around twenty yuloaders and normal terms on
a twy twy of course, being a measure of the
currency versus the currencies of the countries we trade with.
(07:00):
Is that sort of fit into the global growth story there?
Or why are we doing so poorly against some of
the other currencies?
Speaker 2 (07:06):
Yeah, I think it does to some extent so, and
it tends to be the case. You know, if Ossie's
doing badly against the US dollar for whatever reason, it
also tends to be trading in a similar way effectively.
Although it's been you know, it's been pretty choppy again
in sort of relatively broad ranges. You know, the sense
is that you know, it is it is pretty low.
But if that interest rate story takes a firmer hold,
(07:27):
I think on investor attitudes and you know, bearing in
mind that, you know, if the outlook is for lower
rates in the US, it's probably lower rates in the UK.
If rates are going anywhere in the rest of Europe,
they're probably going down. Then you know ultimately that that
interest rates story should be supportive. But we do need
to see, you know, a bit more confidence, if you like,
(07:48):
in the outlook for the global economy. I think for
you know, to ossie be appreciating not just against the
US dollar, but against those other currencies that make up
that basket.
Speaker 1 (07:58):
Okay, if I'm a business thinking about selling overseas, perhaps
buying some piece of equipment to bring into the country,
maybe I just want to go on holidays at the
end of the year, so the focus is not twelve
months time from now. It was a green span that
said you flip a coin when you're trying and work
out which way a currency is going, or something along
those lines. But I'm putting you on the spot right
in the spot.
Speaker 2 (08:19):
Well, our forecasts are for oussie to be stronger, not dramatically.
So now a lot of that is contingent on the
US dollar starting to depreciate. It's obviously spent four or
five months now sort of defying the naysayers, and part
of the reason for that is that this concept of
US economic exceptionalism just doesn't seem to be reversing. You know,
(08:42):
the economy still looks to be out performing the rest
of the world, and so to have a negative view
on the US dollar, which would probably propel the Aussie
higher against all currencies, you really need to see that
sort of loss of exceptionalism. Now that may well materialize
as we go through. We've got signs of cracks obviously
appearing in the US labor market with unemployment picking up,
but because of things like the sheer scale of the
(09:04):
capital capex that's going on, particularly amongst the so called hyperscalers,
you know, it looks like the economy is probably outperformed
just about every other economy in the world. And on
that basis, you know, it's hard to see the US
dollar coming too much harm and less or until that changes.
So you know, our expectation is that, you know, the
labor market will drive policy. There are big question marks
(09:25):
over just how credible the FED will be under a
new chair that we should learn the who that will
be in the coming weeks, for example, So if it
is the case that we see perhaps the Fed's there's
more inclined to be cutting rates or perhaps more aggressively
than might otherwise be the case. We think that certainly
has the potential to undermine the dollar. So we're in
our forecast. We've got oz against whether it's against the pound,
(09:47):
whether it's against the Euro, whether it's against the US dollar,
all looking stronger in twelve months time than they do today.
Speaker 1 (09:55):
Right. Thank you for talking to Fear and Greed Pleasure.
Thanks Sean, it was veryatural head of if IT strategy
at National Australia Bank. If you've got something you'd like
to notice, an through your question via LinkedIn, Instagram, Facebook
or at Fearangreed dot com dot au. I'm sure I
all this is Fear and Greed Q and A
Popular Podcasts
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Are You A Charlotte?
In 1997, actress Kristin Davis’ life was forever changed when she took on the role of Charlotte York in Sex and the City. As we watched Carrie, Samantha, Miranda and Charlotte navigate relationships in NYC, the show helped push once unacceptable conversation topics out of the shadows and altered the narrative around women and sex. We all saw ourselves in them as they searched for fulfillment in life, sex and friendships. Now, Kristin Davis wants to connect with you, the fans, and share untold stories and all the behind the scenes. Together, with Kristin and special guests, what will begin with Sex and the City will evolve into talks about themes that are still so relevant today. "Are you a Charlotte?" is much more than just rewatching this beloved show, it brings the past and the present together as we talk with heart, humor and of course some optimism.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.