Every country is different, which is reflected in their economy; and Australia is no exception. The AUD – Australian Dollar will react differently to world events, which is essential to understand when trading. Here are some things you might want to keep in mind when trading the Aussie.
The Australian Dollar is one of the top-five most-traded currencies, despite the relative size of their economy and population. Also, it’s been a free-float currency since just 1983, making it the youngest major on the market. Despite those limitations, the country has garnered sufficient trust from traders in a relatively short time, helped in part by Australia consistently coming in near the top of the lists of most business-friendly nations.
Australia’s economy is highly dependent on exports, specifically of raw materials. Despite being a highly industrialized nation with an advanced economy and a comparable service sector, the sheer size of commodities available in Australia leads it to be highly dependent on the fluctuations of those markets. Commodity prices, especially iron ore, gold, oil and agricultural products have an oversized impact on the currency.
The currency is regulated by Australia’s central bank: the Reserve Bank of Australia (RBA), which is noted for being relatively conservative in its approach to monetary policy. It has a single mandate to control inflation, and takes this role quite seriously, implementing what are often the highest interest rates in the developed world, as well as intervening less frequently.
Australia’s primary export partner is China; as the largest manufacturing hub in the world, China has some impact on most economies. However, in Australia’s case, that’s a bit oversized, given that Australia chiefly exports commodities of which China is the primary consumer. Additionally, Chinese firms invest substantially in Australia. Consequently, news from China can have a more significant impact on the Australian Dollar pairs.
Five major events happen each month which can have a significant impact on the Australian Dollar. In chronological order they are:
– RBA interest rate decision: Australia’s central bank tends to intervene infrequently, and as such, moves can get more attention. It hasn’t taken action since mid-2016, after a slow cut trajectory since 2011, leaving it now at its current record low.
– The balance of Trade: As an export-dependent economy, an unexpected surplus or deficit in trade can have a significant impact on the currency. In Australia’s case, there is special attention to the components, given the dependency on demand for raw materials from China.
– NAB Business Confidence: comes out about a week after the trade balance, gives some insight into how the economy is doing internally.
This data is often considered in combination with:
– Westpac Consumer Confidence Index: released shortly after business confidence, gives the other side of the economy from the demand side. Along with the index is the Consumer Confidence Change, published at the same time.
– RBA Financial Stability Review: Typically issued two weeks after the interest rate decision, gives an overview of what the RBA is seeing in the economy, and is scrutinized for indications of when a next intervention might be expected. Changes in the language regarding expectations can move the market.
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