This week, the Australian federal government announced its annual budget, which has caused a wide response from all walks of life, but also brought an interesting phenomenon - the Australian dollar has continued to rise sharply.
The Australian dollar (AUDUSD) broke through the 0.67 mark during the session, reaching its highest level since January 11, on the back of the "Future Made In Australia" in the Budget. At the same time, the Australian dollar also made a big stride against other major currencies.
The momentum of the Australian dollar's rally is so strong that it remains volatile at intraday highs amid the headwinds of a sharply lower than expected employment data released on Thursday morning.
A month ago, the mere weaker-than-expected number of jobs could have triggered a sharp swing in the Australian dollar, not to mention today's announcement that the unemployment rate soared from 3.9% to 4.1% in April.
Another bigger downside comes from the Treasury's public announcement that Australia will achieve its inflation target by the end of the year, which not only slaps the RBA in the face, but also stimulates the capital market to reduce the behavior of denominating the Australian dollar.
So what are the factors driving the continued breakout of the Australian dollar?
To put it simply, it is mainly the optimism of the international market for the second wave of Australia's future "ore boom", and the currency depreciation caused by the approaching interest rate cut cycle of other currency issuing countries.
Let's first look at the second wave of "ore boom" that is very likely to occur in Australia.
As early as the 1850s, Australia attracted immigrants from all over the world to Australia through gold mines, which is known as the "Gold Rush".
In the following 100 years, Australia has experienced two major iron ore booms, also known as the "iron ore boom", in which this wave of iron ore boom between 2000 ~ 2010 is due to the support of Australia's largest trading partner China for large-scale projects such as real estate and infrastructure, and iron ore as a necessary raw material for steel smelting, has obviously become a hot commodity.
So how much wealth has this crazy ore trade brought to Australia?
According to the Reserve Bank of Australia (RBA) data, between 1970~2005, ore-related investment accounted for about 1~3% of the Australian economy (GDP).
In 2000, for example, Australia's GDP was only US$416 billion (about A$665.6 billion at the exchange rate at the time), and the value of ore investment and trade at that time was only 1% of GDP, about A$6.656 billion.
But at its peak in 2010, ore investment and trade accounted for almost 9% of GDP that year, and GDP soared to US$1.15 trillion (A$1.32 trillion), so 9% equates to A$120 billion.
18 times in 10 years!
In other words, raw material exports, particularly ore exports, are undoubtedly the core drivers of Australia's economic growth.
Looking at the strength of the Australian dollar in the same period, we take the Australian dollar against the US dollar (AUDUSD) as a reference, and we will find that it has risen by 126.39% (from 0.48 to 1.10) between 2001~2011.
Not only that, but Australia's GDP growth also peaked around 2011, followed by a long period of negative growth for many years.
It can be seen that the prosperity of the raw material export industry determines Australia's national fortunes.
So, could the current rise in the Australian dollar, especially in the face of interest rate cut expectations and a surge in unemployment, be due to a second wave of "ore booms"?
The answer is very probable.
It's just that this wave should be called the "copper mine boom".
Bloomberg data shows that copper prices have continued to rise recently, from US$8,091 per tonne at the beginning of the year to US$10,220 per tonne this trading day, a three-month increase of 24.3%.
Why is copper such an obscure ore so hot?
The answer lies in the budget, which is the heating up of the global race for new energy, and copper is at the heart of renewable energy, whether it is batteries, solar (photovoltaic, PV) or wind power.
So how much copper ore is needed?
The McKinsey report states that a megawatt photovoltaic solar system (enough to power about 600 homes for a year) requires 5.5 tonnes of copper, while a 660-kilowatt wind turbine needs 350 kilograms of copper.
If you look at a larger-scale power plant, a conventional wind power plant would require about 7,000 tonnes of copper.
At US$10,220 per tonne, the cost of a conventional wind power plant is US$72 million for copper alone.
The recent uproar about Billiton (BHP) trying to acquire Anglo American Plc is because BHP has taken a fancy to Anglo American Resources' copper resources, and after the two sides failed to acquire peace talks, Anglo American Group decisively said: If we don't sell, even if we want to sell, we will leave copper assets.
The scarcity of copper mines, on the one hand, is due to the extremely high time cost of developing copper mining areas (usually 7~14 years), and secondly, because of the rapid white-hot competition between China and the United States - BYD surpassed Tesla at the beginning of the year to become the world's highest-selling electric car, which is the best example.
On this issue, the United States appears to be very passive, because Tesla, as a national enterprise in the United States, has little initiative in the supply chain of lithium batteries - 42% of batteries come from China (CATL accounts for the largest proportion), and the rest of the batteries come from Japan's Panasonic and South Korea's LG.
The main reason why Tesla is in such an embarrassing situation in the supply chain is that the US government is dragging its feet, because the US has extremely strict laws on ore mining, and more interestingly, the US does not even have a government agency dedicated to ore mining, so it is very difficult to mobilize resources and coordinate private enterprises.
Considering the 7~14 years of mining development time, as well as the pitiful copper reserves in the United States, then the U.S. government urgently mobilizes global allies to "contribute" resources, which is a must-move.
And Australia,
It's this valuable chess piece.
According to the Australian Geological Agency, Australia produced a total of 830,000 tonnes of copper in 2022, ranking 8th in the world, behind Indonesia (9.2 million tonnes) and Russia (1 million tonnes).
Although the production is not high, Australia's copper reserves are the second largest in the world (11%), behind Chile (21%)!
Therefore, the new energy transition, which will accelerate in the foreseeable future, and the consequent massive demand for copper ore in the international market, will become Australia's second ore boom in the 21st century.
Huge copper reserves, coupled with Australia's cautiously maintained friendly relations between the two new energy superpowers, China and the United States, will be the cornerstone of this round of "copper ore boom".
And the long bull market in the Australian dollar may have quietly begun.