Finance

The Australian Dollar and How to Trade It

Australia isn’t a particularly large country. However, it has been among the most important economies in the world. And the Australian dollar is one of the most frequently traded currencies in the world. What makes it interesting is that the Aussie dollar has only been free-floating since 1983.

The 3Gs of the Australian Economy

Australia is largely popular because of its 3Gs, which are geology, geography, and government policy.

Geology has given the nation a treasure trove of natural resources that are in high demand. These include oil, gold, agricultural products, diamonds, iron ore, nickel, coal, and uranium.

Geography, meanwhile, has positioned Cryptocurrencies News Australia as a choice trading partner for a lot of fast-growing Asian economies with almost-infinite resource demands.

Government policy has led to fairly stable high interest rates, stable government and economy, a lack of need for intervention in the forex markets, and a western approach to business along with the rule of law, which has not always been typical in the region.

The Reserve Bank of Australia

Behind the Australian dollar is the Reserve Bank of Australia, which is considered to be a conservative institution. It doesn’t usually implement frequent interventions in the forex market.

Also, although most central banks have the mandate to control inflation, the RBA takes it very seriously. Australia has thus some of the highest interest rates in the developed world.

Still, even Australia isn’t immune to challenges and crises. The high rates failed to prevent a housing bubble.

At the same time, the Forex Brokers List country has suffered from the unpredictability of the commodity cycle and its impact upon the country’s trade balance and capital account.

Economics of the Australian Dollar

Among its peers, Australia is remarkable for its heavy dependence upon commodities. Mining and energy represent more than 5% of the GDP, with special emphasis on nickel.

Farming is also a crucial component. Around 12% of the GDP has links to agriculture and connected sectors. A large percentage of the output goes outside of the country.

But the country massive resource wealth has not had a tremendously positive impact on the economy. Even with the economic liberalization of the country, it has never managed to develop a robust domestic manufacturing sector.

The country instead has a large current account deficit and housing bubble.

Australian Dollar Drivers

The country’s economy is largely driven by commodities such as metals and grains. The reports on crop planting, harvests, weather, mine output, and metal prices all can move the Australian dollar.

These reports aren’t difficult to find, too. Australia’s Bureau of Agricultural and Resource Economics and Sciences release regular reports that are readily available online.

The Australian dollar strength is also closely tied to its exposure to Asia and the commodity cycle. Also, the demand from India, China, and Japan for natural resources has bolstered the Aussie dollar up in past cycles. But they fall as the commodity demand cycle wanes.

Australia also stands out in the region for the exceptionally stable government and its generally pro-business environment.

However, the rise of China has been affecting Australia’s role in the region.

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