The Australian Dollar and Gold Correlation
The Australian Dollar has been an interesting currency to watch over the past few months as it has risen in value. The rise has been helped by a wide range of economic and political factors. It has also been correlated to gold and interest rate differentials between the Reserve Bank of Australia and the Federal Reserve.
Interest rate differential between the Reserve Bank of Australia and the Federal Reserve
When the Reserve Bank of Australia (RBA) cuts interest rates, it also transmits these changes to the wider financial system. This is a complex process that involves various factors. Among other things, the Reserve Bank’s policy measures impact the way borrowers and lenders behave. It also affects the rate of inflation and the overall economy. However, the exact effect of these measures on the economy isn’t clear.
The main monetary policy tool used by the RBA is the target cash rate. This is the rate that banks charge each other for overnight loans. Other tools include forward guidance and the purchase of Australian Government bonds.
To get a better understanding of the target cash rate, let’s take a closer look at the five factors that determine the cash rate in Australia.
The target cash rate is anchored by a low risk-free yield curve in the Australian financial system. The lower the cash rate, the lower the borrowing costs for households and businesses.
Correlation with gold
During periods of economic uncertainty, investors will turn to gold. This is because it is a safe haven. It is also a strong diversification in a portfolio.
The AUD/USD is a currency pair that is highly correlated with the price of gold. When the price of gold rises, the value of the AUD increases. Similarly, when the price of gold falls, the AUD will fall. However, this does not always translate to a rise in the dollar.
The Australian dollar has lost some of its connection with gold. In fact, this is the case for most of the world’s major currencies. Despite this, the AUD/USD is still one of the strongest.
Australia is the third largest gold producing country in the world. Its mining industry contributes to about 80% of the world’s gold. Furthermore, the nation exports substantial amounts of gold, minerals and other precious metals. As a result, the country’s economy is heavily bolstered by the yellow metal.
The Australian dollar is a popular currency in the trading community. It has a positive correlation with the price of commodities and can often increase or decrease when commodity prices rise or fall. However, there are other factors that affect the value of the Aussie.
Australia’s economy is heavily based on mining and agricultural commodities. These commodities are exported to the Asian market. China is Australia’s largest trading partner. In recent years, China has expanded its economy, providing tailwinds to the AUD. But growth may be tempered as China faces a real estate crisis. This will also impact exports and trade.
Another factor that will affect the AUD is interest rates. Australia has one of the highest interest rates in the world. And the RBA has been aiming at controlling inflation.
If Australia continues to grow and exports continue to increase, a positive trade balance will help the AUD. However, if global demand for commodities slows down, it will have a negative impact on Australia’s exports.
Australian exporter of coal and iron-ore
Australia is one of the world’s leading exporters of coal and iron-ore. These commodities account for more than a third of Australia’s total exports. They are also among the most valuable.
Australia’s total resources and energy exports are set to break records this financial year. The value of this year’s exports is expected to rise 38 percent over the previous year. It is forecast to hit a record $459 billion. However, there are also significant changes underway in the resources sector.
Australia is a major exporter of commodities, including coal, uranium, and iron-ore. Iron-ore is an important input in steel production.
Despite the recent drop in Chinese demand, Australia is still expecting to boost its iron-ore exports. This is a key component of the country’s trade with China, which is valued at over $280 billion. Australian Treasurer Jim Chalmers warned that the economy cannot depend on a high export price.
Australia’s total goods exports to the PRC declined by 2.3 percent in the first eight months of 2020. Exports to India increased by 47.5 percent, while imports of Australian goods to Korea fell by 39.3 percent.