The aud usd is often referred to as a ‘com-dollar’, a shortened version of the term commodity dollar, as Australia itself is of course a country rich in natural resources, and therefore the Australian dollar itself is heavily influenced by the core economies based around these naturally occurring commodities such as gold, aluminium and iron ore. With an economy largely based on the export of these minerals, Australia has one of the largest trade deficits in the world, with wheat also a major export. Imports typically include plant and machinery along with office equipment. Australia’s biggest trading partners are China, Japan and the US, with China’s booming economy of the last few years helping to fuel demand for all of its natural resources as a result.
Despite the wealth of natural resources in the country, just like many other economies around the world, Australia’s is based largely on the services sector, with approximately 73% of GDP generated from the leisure, property, business and finance sectors. The central bank for Australia is the RBA ( Reserve Bank of Australia) which is responsible for setting interest rates and implementing monetary policy, with interest rate decisions issued on the first Tuesday of each month ( except January), with the board meeting eleven times a year. Australia is one of the few countries around the world which has remained relatively unscathed from the economic recession, which has brought many economies to their knees, and this is partly due to the com-dollar aspect of the economy.
As one of the most popular currency pairs to trade, understanding the relationship between the price of gold and the Aussie dollar are vital for longer term forex trading success, given that Australia is the world’s third largest producer of gold. As such, the Aussie dollar tends to correlate directly with the spot gold price, so as gold prices rise, then the Aussie dollar will strengthen, and when gold prices fall, then so will the Australian dollar. More recently the Aussie dollar has also tended to strengthen as market mood has veered towards greater risk tolerance which has been evidenced in the Aussie yen currency pair. With relatively high interest rates compared to many countries around the world, the currency is also favoured for the carry trade, along with the New Zealand Dollar, generally against the Japanese yen, and having remained relatively unscathed from the recent financial turmoil in the markets, the RBA is now one of the first central banks around the world to begin raising interest rates once again. With high interest rates, the Aussie Dollar is a favourite amongst forex traders for the carry trade ( particularly with the Japanese Yen), and as such the currency can be driven up by speculation, rather than economic or technical factors. Finally a word of caution here for forex traders – the RBA have a tendency to intervene in the currency markets should they perceive their currency being heavily influenced by these speculative trades, and whilst any intervention generally is only temporary, it does create significant volatility as a result, and comes as a complete surprise to novice forex traders.
Forex Trading Indicators
Below are a few of the major fundamental news releases which create volatility in the forex markets when released, and for the latest fundamental news items for today, just check the economic calendar by following the link here.
- Interest rates – as already outlined above, Australia is one of the first countries to begin a programme of raising interest rates following the world recession which has dominated the financial markets over the past two years. With higher interest rates than most other countries, the Aussie dollar does attract speculative trading particularly in the carry trade, and the RBA will step in to protect it’s currency should it perceive this speculative forex trading as potentially damaging to the currency and the country.
- GDP – GDP is a classic lagging indicator and provides information on the a country’s economic performance. It reflects the current market value of final goods and services produced within a specified period, which in most cases is quarterly. As a general rule an increase in GDP and hence in exports is positive for the currency, however, if the increase is as a result of increased inventories, then in this case the currency usually suffers as a result, so any GDP data needs to be analysed carefully before jumping to any quick conclusion and trading accordingly. In general GDP figures are often know in advance, particularly where they are revised figures or final figures, based on previous releases, so unless the GDP data is the preliminary release, then the effect is often muted as a result.
- CPI – Consumer Price Index. Another of the red hot indicators that is dissected by the currency and broader markets and measures the change in retail goods and services including food and energy. Unlike most other countries Australia publishes its figures on a quarterly basis with the headline figure presented as a % change on the previous quarter’s figures. The effect on the currency is generally muted.
- Trade Balance – The trade balance indicates whether the country is exporting more than it is importing, a positive trade balance, or importing more than it is exporting which is a negative trade balance. The effect of these figures on the currency is limited, simply because the figures are released almost a month after they have been calculated. It is therefore assumed that any changes will have already been felt in the economy, and is therefore largely ignored!
All of the above indicators are covered in more detail in the economic indicators section of the site, and below is a forex trading chart with the latest live prices for the USD GBP forex pair.
