Although the Australian dollar remains one of the top 5 most-traded currencies and one of the three primary commodity currencies, it’s still vulnerable to market changes. In order to predict these changes and how they will affect your investments, we have created a short guide that will help you better understand the factors affecting movements in the Australian dollar, what gives the dollar its worth, and what causes changes to its value.
What Gives the Australian Dollar its value?
The Australian dollar owes its popularity and value to the fact that Australia is rich in natural resources and precious metals, is a neighbor to major countries, and has a stable government. One way to remember these three qualities is by using the three G’s: Geology, Geography, and Government.
Now That We Know Why the Australian Dollar Has Value, What Are Some Common Factors That Affect Movements in the Australian Dollar?
Resources such as gold, oil, and coal have a large impact on the price of the Australian dollar. Things such as mining restrictions, a lack of resources, and a low demand from nearby countries all have an effect on the way the Australian dollar performs.
Approximately 12 percent of the value of the Australian dollar is based on farming and agricultural processes. Should problems arise such as droughts or laws that pertain to livestock and restrict their transport overseas, the Australian dollar will be affected.
Reserve bank policies
The Australian dollar has been quite popular for carry trades between itself and the Japanese Yen, for which the interest spread between the two has been as high as 4 percent. It’s important to note what kind of policies the Australian Reserve Bank has so that way you can determine the direction of interest rates and whether or not investors will choose to pursue the Australian dollar as a profitable option.
Around 76 percent of Australia’s exports make their way to Asia. If countries in Asia are unable to afford some of the exports or change their trade regulations and policies regarding Australia, it can lower the Australian dollar’s price.
The most important thing to remember when investing in and predicting future movements in the Australian dollar is that it is a volatile investment. Be wary of this fact and the above factors when investing in the Australian dollar.
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Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions. To the extent permitted by law, we exclude all liability for any loss or damage arising in any way.