Factors That Affect the Value of the AUDUSD
When looking at the currency exchange rate of the AUDUSD, there are a number of factors that can affect the price. These include interest rate differentials, commodity prices, and sentiment.
Interest rate differentials
A key factor in determining the value of the AUD/USD currency pair is the interest rate differential between the two countries. The Reserve Bank of Australia and the Federal Reserve of the United States are two important central banks that influence AUD/USD exchange rate.
Historically, interest rate differentials have led to a strong demand for the Aussie Dollar. However, the recent recession headlines from China have provided headwinds for the AUD.
The AUD/USD is currently trading within a 76-78c range. It has been losing strength over the past few days. This may be due to new regulatory signals. In the meantime, the global risk sentiment remains positive.
The Australian economy is performing well. The unemployment rate is the lowest since 1974. Trade relations with the US and Asian nations also play a role in the currency.
China is Australia’s largest trade partner. However, the Chinese economy recently reversed stimulus. That could lead to a slump in commodity prices and a decline in the AUD.
Commodity prices are one of the main factors in the value of the Australian dollar. A high price for commodities could drive investments and exports, while a low price could make an economy less competitive. The Australian dollar is also influenced by interest rate differences with the United States.
The Australian dollar has been on a downtrend since 2011. While the economy of Australia is still one of the world’s fastest-growing, it has lost 15% of its value against the US dollar in the past two years.
There are many reasons for this. One reason is the economic slowdown in China. China is the largest trading partner of Australia. If China’s demand for key commodities decreases, this can push down prices. It may also force Australia’s exporters to expand production capacity.
Other reasons include geopolitical tensions and interest rate policy. These factors will continue to affect the value of the Australian dollar.
Australia is a major exporter of natural resources and minerals. This includes coal, iron ore, and agricultural commodities. However, the recent slump in global commodity prices has put a damper on the Aussie.
Government credit ratings
The Australian dollar has had a rough time lately against the US dollar and a hefty chunk of the Aussie’s export earnings are in the Chinese market. While this does not a whole lot of good in itself, it does put downward pressure on the Aussie’s currency value. To help balance out this, the Reserve Bank of Australia (RBA) has been on a hike. They have raised their rates by three percent since May.
Although the RBA’s rate hikes were relatively small compared to the Federal Reserve’s 375 basis point hike cycle, they were certainly the apex of the decade. In addition to the aforementioned rate increases, the Australian government has recently thrown in its weight by announcing a significant increase in public spending, a resurgence in its nebulous tourism industry, and a new tax reform that is expected to yield the biggest stimulus in the nation’s fiscal history.
However, while the ol’ Aussie’s monetary system has been able to withstand the latest storm, the nation’s economy will face some stiff challenges in the years ahead. Among the factors weighing on the nation’s economic health are rising global commodity prices and the lingering effects of China’s slowing growth.
Sentiment and speculation
The Australian dollar is the fifth largest traded currency worldwide. Historically, the AUD has been influenced by a variety of factors. These include interest rate differentials, government credit ratings and commodity prices. However, it is also influenced by overall sentiment.
In September, the Australian Bureau of Statistics reported that inflation had reached 7.3%, which was the highest rate since 1990. This was a negative indicator for the Australian dollar. Investors had concerns about the impact of higher rates on households, as well as the housing market.
This week, non-farm payrolls data is due for release. Analysts expect a tight labor market. If this data is strong, the AUD/USD could rebound. On the other hand, if this data is weak, the Aussie could take a hit.
Another factor that affects the exchange rate is the economy. Positive economic growth can boost demand for the Aussie, but negative economic growth can depreciate the currency.
Besides the interest rate differentials, the Australian dollar is also influenced by speculation. When global equity markets decline, investors turn to safe haven investments such as the Aussie. As a result, the currency often appreciates.