What Are the Economic Drivers of the Australian Dollar?

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Just like any currency, what drives the market movements of the Australian dollar is supply and demand for the Australian currency. However, being able to pinpoint specifically the more influential economic drivers of the Australian dollar is important for any forex trader looking to make profit. Some of the most important economic factors are the Reserve Bank of Australia, the commodities markets and carry trade.

Reserve Bank of Australia

Australia’s monetary policy decisions are made by its central bank, the Reserve Bank of Australia (RBA). The central bank’s aims include maintaining price stability and overall economic strength in Australia. The RBA’s six-member board generally has a 2-3% inflation target. The board meets nine times per year. Forex traders should pay close attention to the various releases associated with RBA meetings in order to glean clues as to future decisions to move interest rates which can have a direct affect on the value of the Australian dollar.

Commodities

Another economic factor which has a strong influence on the Australian dollar is fluctuations in the commodities market. Since Australia’s economy is dependent upon commodities exports, the strength of the Australian dollar is generally correlated with commodities prices. High commodities prices causes a rise in the Australian dollar and vice versa.

China and India

Just like any country, economic conditions with Australia’s main trading partners will have a significant effect on Australia’s economy as well as it’s currency. For this reason, currency speculators looking to trade the Australian dollar should pay close attention to economic developments in China and India. Increases in demand for commodities from these countries tend to be bullish for the Australian dollar.

Carry Trade

Many traders are attracted to buying and holding Australia’s currency due to the relatively high interest rate of the Australian dollar compared to other currencies. This strategy, known as a carry trade, allows investors to capture the difference in interest rates between two currencies in a currency pair. Carry trade strategies tend to provide upward pressure on the Australian dollar.

Considering all of these aspects can help forex market participants obtain profits when trading the Australian dollar. However, there are other economic drivers which should be considered, such as employment reports, housing data and other economic releases related to Australia’s economy. Additionally, proper technical analysis and keeping an eye on market sentiment can help traders make trading decisions.

Writer Bio

LeBach PhamLe Bach Pham has been writing professionally after receiving his Bachelor’s of Art in English Literature from the University of California, San Diego in 2002. He now¬†specializes in writing about legal, business and financial topics. Pham also earned a Paralegal Certificate from the University of San Diego and has experience working in the legal field. He also has experience in writing business plans for clients from various fields, including banking, finance, retail, education, beauty and various other sectors.

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