What you need to know about the Australian Dollar

  • By Author

  • July 13, 2018
  • 11:59 pm BST

Australia and the Australian dollar are unique elements when it comes to forex trading. The Australian dollar is among the five most traded currencies in the market, even though the country finds itself further down the line in most economic indicators. For starters, Australia finds itself in 13th position in terms of global GDP rankings, and it ranks 19th when it comes to the value of its exports globally.

These figures would suggest that the Australian dollar is not a force to be reckoned with, nor would it be found among the top five currencies, but that simply is not the case. The Australian dollar has a formidable presence in the forex market and is even a favorite of most CFD brokers.

On one hand, it is safe to say the Australian dollar is punching above its weight, but there are other factors specific to Australia that should be kept in mind. These factors make the Australian dollar’s strong performance on the forex market unsurprising to CFD brokers.

They can be described as “the 3 Gs”: government, geography and geology. The government has been responsible for ensuring a stable economic and political environment that supports fairly predictable high interest rates. Geography has been responsible for positioning the country close to fast-rising Asian economies. Finally, geology has provided the country with valuable natural resources such as coal, nickel, uranium, iron ore, diamonds, gold and oil.

Economy supporting the Australian Dollar

Australia’s economic performance measured in GDP indicates that many other countries are outperforming it. After all, it only ranks 13th on the global GDP list. However, that has not affected the Australian dollar very much as the currency is among the top five performing currencies on the forex market. Here is a look at some of the drivers responsible for the good performance of the Australian dollar.

Drivers of the Australian dollar

According to reports that are released yearly by Australia’s Bureau of Agricultural and Resource Economics and Science, the Australian economy is driven by the commodity sector, mainly grains and metals. This means that any positive outlook in terms of agricultural produce will positively affect the performance of the Australian dollar, an important CFD trading tip for forex traders.

The proximity of Australia to fast-rising Asian countries such as China, Japan and even India allows for the smooth flow of commodities into and out of the country. The fairly stable relationship between Australia and its trading partners contributes to the steady performance of the Aussie dollar while almost guaranteeing that the fairly stable but high interest rates in the country remain predictable.

Successive government administrations in Australia have also managed to maintain consistent government policies. In the few times that the policies have been altered, the changes have not been significant enough to worry most economic actors in the country. This has managed to create and sustain business confidence in the country, which has, in turn, allowed the Australian dollar to maintain its value on the foreign exchange market.

Stability and consistency have not been restricted to policy changes; these characteristics also extend to government changes. In the past, Australia has managed to change governments through peaceful, free, fair and credible elections that have not been ridden by scandals. Confidence in the country’s political system and political institutions has gone a long way toward helping the Aussie dollar maintain its value. Another crucial factor relates to how the Australian government handles natural disasters. While natural disasters are a common feature in the country, they have been handled efficiently and have not adversely affected the country’s economy too much.