The Australian Dollar is deteriorating significantly amid the rumors that Chinese customers were canceling orders of Australian coal.
The Australian dollar fell sharply on Thursday and continued to fall on Friday, the AUD/USD pair is likely to fall to 0.6964 with the potential for a further decline to a mid-June low of 0.6789. The AUD/USD pair aggressively sold – the negative bias remains below the short-term downtrend of 0.7211, which persists. The downtrend will continue the negative trend, and the short-term risk remains to decrease to 0.6964. There are opportunities for growth before the 200-day MA, February high, and mid-June low at 0.6789/74, which is expected to hold back the fall.
Factors influencing the Australian dollar
The Australian dollar is the official currency of Australia. The Australian dollar is a relatively young currency. It appeared on February 14, 1966. Previously, the Australian currency was the Australian pound.
At the moment, the Australian dollar ranks 6th in terms of Forex transactions after the US dollar, euro, yen, British pound, and franc. Its share of operations is about 5%.
The Australian Dollar is a major currency for a lot of Forex brokers and its popularity is rising gradually. We can prove that by checking various brokers and if you read this FXTM review here you can discover that the AUD/USD currency pair is one of the most traded currencies and traders pay a lot of attention to the Australian dollar.
Internal factors influencing the AUD
Domestic factors include macroeconomic indicators and the prospects of the country’s monetary policy.
Interest rate. The interest rate in Australia is determined by the Reserve Bank of Australia (RBA), or rather its monetary policy committee. The committee consists of the chairman of the bank, the vice-chairman, the secretary of the Australian Treasury, and the six-member independent members, which are determined by the Government.
The regulated interest rate is the overnight loan rate between financial intermediaries, which in turn determines other rates in the economy.
As for other currency pairs, the main engine of the exchange rate is not the interest rate itself, but the prospect of its change in absolute size or the prospect of a rate change in relative size to the rest of the countries, mainly to the US, the Eurozone and Japan.
The Reserve Bank of Australia maintains its inflation target of 2-3 percent a year because inflation resilience and inflationary expectations are seen as key to sustainable growth for the economy. The retail price index is used as the main indicator, which is the attention of the country’s monetary authorities.
The dependence between the exchange rate and inflation is similarly manifested through the interest rate: high inflation, all other things being equal, means that the bank will raise the rate to contain inflation, and this leads to the appreciation of the Australian dollar and vice versa, low inflation will sooner or later lead to the need for stimulus in the form of a rate cut, and this – a depreciation of the national currency. The Australian dollar is particularly sensitive to the news on inflation before the meeting of the Committee of the Reserve Bank of Australia if at this meeting there is a possibility of a change in the interest rate.
GDP. The GDP rate determines the state of the economy and its strength. The relationship between the growth of the economy and the exchange rate of the national currency is direct, and it operates through two channels. First, the larger the economy and the faster it grows, the more money investors invest in the stock market of this country, which means that the demand for currency for the purchase of national assets grows. Secondly, the growth of the economy faster than expected leads to a faster end of the economy’s low-rate stimulus at an early stage, and at a later stage to raise rates to prevent the economy from overheating. Both lead to an increase in the Australian dollar.
Growth is slower than expected, or a decline in GDP leads to a reverse process through the same two channels of communication.
Unemployment. Unemployment is one of the most important indicators of the economy. And not only because employment is the basis of domestic demand, the main factor that moves the economy. The fact is that unemployment is what first hits voters. Therefore, solving the problems of unemployment becomes one of the main areas of action of the authorities, including financial ones.
Rising unemployment is leading to a faster rate cut to stimulate the economy or a slower recovery than previously expected – a decline in the Australian dollar. Reducing unemployment has the opposite effect.
External factors influencing the AUD
AUD refers to freely convertible commodity currencies because its exchange rate is highly dependent on commodity prices. This dependence is the reason why Australia is essentially an export country that sells gold, iron ore, oil, gas, coal and various agricultural products in foreign markets. In total, Australia’s commodity exports account for 75 per cent, with more than 10 per cent of agricultural products and more than 30 percent of fossil fuels. Commodity export orientation is so high that all industrial production accounts for just over 15% of the country’s exports.
Australia is the third-largest exporter of gold in the world. Exports of the gold amount to more than 5 billion dollars annually. Exports of gold and gold products account for about 50% of the country’s exports, so it is believed that the correlation between the price of the Australian dollar and commodity markets, such as gold, reaches 80%.
The dependence on commodity prices is manifested not only in the fact that the increase in commodity prices has a beneficial effect on the economy that produces goods, there is another mechanism for this impact. The fact is that the rise in commodity prices is causing inflation in the national economy, which after a while leads to the fact that the national bank in an attempt to curb it begins to raise its main interest rate.
