The Australian dollar is the currency of the Commonwealth of Australia. According to the rating of 2015, Australia is 12th considering the rate of GDP, in terms of population it is 50th place, and considering the value of its exports, it is on 19th. Though AUD was floated only since 1983, it has become one of the most traded currencies in the Forex market.
The reason for the popularity of "Aussie" is thought to be geography, geology, and the local government policy. The country is rich in minerals. There are extracted oil and gold, uranium and coal, iron ore, nickel and diamonds. The agriculture also brings significant revenues to the state. The favorable geographical position allows Australia to permanently supply with resources the developing economies of Asia, which is also very beneficial.
The Australian Government policy allows to constantly keeping high rates of interest. In the country you will find a stable government and economy, which permit not to intervene in the currency markets. There is also a Western approach to business and Europeanized legal standards.
The Australian dollar is controlled by the Reserve Bank of Australia, which leads a conservative policy and refrains from intervention in the foreign exchange markets. As the RBA is serious about the issue of inflation control, interest rates in Australia are often higher than those of other developed economies. Yet, the RBA has its difficulties: the trade cycle of the country and its impact on the movement of capital and the balance of trade remains unpredictable.
The economic support of Australian dollar
The Australian economy is on 13th position in the world, closing the group of major currencies. Australia among developed countries is distinguished by its dependence on raw materials - the mining industry (including energy production) crouches over 5% of GDP, while nickel has a special contribution. Approximately 12% of the GDP of the country is taken by agriculture, most of the production of which is sold abroad.
However, the natural resources have always not had a positive effect on Australian economy. Despite the economic liberalization carried out in the 80s, the prosperity of the manufacturing sector has not happened. In the state there is a significant current account deficit, a serious external debt, a "bubble" in the housing sector and the highest interest rates among developed economies in the world.
What drives the Australian dollar?
In order to make the correct decision when trading this instrument on Forex, traders take into account a large number of economic indicators. The most important are: GDP growth, the volume of trade in retail, scale of industrial production, trade balance and inflation rate. To get acquainted with these figures, it is enough to open such financial tabloids as Bloomberg or the Wall Street Journal. It will also be properly to analyze the interest rates, including the scheduled meetings of regulator, and statistics on employment in the country. You should not overlook the daily news of natural disasters, elections, change of government policy, and other events that may affect the exchange rate.
If it is about Australia, we must remember that its economy is moved at the expense of raw materials (metals, oil) and agricultural products (cereals). The Australian dollar may be affected by: information about the harvest of crops, weather reports, indicators of extractive industries, metal prices, and more. All these data can be found in the online publication of Australian Bureau of scientific and economic research in the field of agriculture and natural resources (ABARES).
The relationships of Australia with its partners in Asia have a significant impact on its dollar. Its strength is related to the commodity cycle and acyclic position of AUD in relation to other major currencies. Previously, the Australian dollar was amplified, as was the demand for resources from China, India and Japan. Then the need for resources has declined and prices fell.
If resource prices rise, traders are seriously concerned that there may appear recessionary pressure in the economy of Europe, Japan and North America. But the Australian economy will flourish in such a period. If the traders wish to bet on raw vulnerability and increased demand for resources in Asia, AUD will play the role of a good alternative against the currencies of other states, as other economies will feel at this moment weaker due to increased production costs.
Specific factors of Australian dollar formation
The control over interest rates and the rate of inflation is also complicated by the fact that Australia is dependent on raw materials realization, and the industrial base is insufficiently developed. With the end of the Second World War, you can systematically observe a large balance of payments deficit. Australia has a small debt in relation to GDP in percent, but government spending grows and the problem is becoming more urgent with each passing year.
AUD is extremely volatile and without precise cycles. Australia has a small volume of exports of manufactured goods, and a heavy dependence on exports of raw materials to Asia, while developed countries are trading in tandem with each other (in part because they have close trade relations). Thus, the country is relatively independent of the world's leading economies, but internal state economy is closely linked to the price of raw material markets.
The specifics of the region
Australia, among other countries in the region, has a stable government and a special attitude to the business community. Its role in the region is under the influence of the Chinese economy, since investing in China currently is more productive. The influence of China and India also falls on trade and economic performance in Australia, because these states are the leaders on the import of Australian raw materials. Australia also imports from China and India equipment and consumer goods.
Conclusion
The currency movement is difficult to predict, as the forecasts of most models in the long-term is not calculated. It is clear that Australia is a rich country. However, it has a strong dependence on the agricultural sphere and minerals. High interest rates and uncompetitive prices interfere with the competition of Australian companies with companies from other countries. In addition, Australia is missing infrastructure. Therefore, the Australian dollar will depend on commodity prices, economy level of major importers in Asia and higher interest rates in the future. Most likely, the Australian dollar will not lose popularity in the currency market, in spite of the growing influence of the Chinese Yuan.