The price of Australia’s currency is counter-cyclical – meaning it doesn’t have a correlation with other currencies – and is incredibly volatile. Here’s what moves the Aussie Dollar’s price:
- Commodities: most developed economies’ currencies will move in line with each other, largely due to the trade relationships between them. But because Australia’s economy is so heavily reliant on commodities, its currency’s price is more closely linked to the price of commodities (metals and grains). This means crop planting, weather, harvests, mine output and metal prices can all have a direct impact on the Aussie Dollar rate. Most other developed economies have a negative relationship with commodities – as higher prices cause higher costs – but for Australia, higher commodity prices create a healthier economy
- Trade relations: a large percentage of Australian exports go to Asia due to their geographical proximity. This means that as well as commodity cycles, the Aussie Dollar is influenced by demand for natural resources from China, India and Japan. As these economies expand and infrastructure spending is boosted, the Aussie Dollar will rise and as demand from Asia falls, so will the AUD
- Interest rates: like any currency, the Australian Dollar is impacted by interest rate outlooks. So, any comments made by the RBA about rate changes can play out on the value of AUD compared to other currencies. Typically, Australia’s interest rates have been kept extremely high, which has made AUD a popular currency for carry trades – when forex traders sell a currency with low interest rates, while buying a currency with high interest rates
- Macroeconomic data releases: important indicators for the health of the Australian currency will move the price of the AUD as traders and investors alter their positions in response to data. Key economic indicators for Australia are the Consumer Price Index, Balance of Trade, GDP and Unemployment Rates