Forex Trading - Australian Dollar

Australian Dollar

Sat, 06 Jan 2007 20:01:47 -0800

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The Australian Dollar introduction

The Australian Dollar (Official currency code is AUD) is a commodity dominated currency and is at present, the sixth most traded in the world foreign exchange markets behind the US. Dollar, Euro, Japanese Yen, British Pound and the Swiss Franc. The Australian Dollar has been the official currency of the Commonwealth of Australia since February 14th, 1966. It is abbreviated by a ‘$’ sign, with substitutes such as $A, $AU, or AU$ and is used to differentiate between the other dollar currencies. The Australian Dollar is divided into 100 cents. The Australian Dollar makes up to 5 percent of total forex transactions (approximately 1.9 trillion dollars a day). The Australian Dollar is a popular choice for currency traders as it lacks government intervention in the forex market, its strong but stable economy and the region it’s located, which is the Asia-Pacific region. Despite lacking government intervention, it is closely monitored by the Reserve Bank of Australia (RBA), the central bank of Australia.

Deregulation of the Australian Dollar

The Australian Dollar was originally pegged to the British pound, but that changed during 1946 where they pegged the Australian Dollar to the US. Dollar in accordance to the Bretton Woods system. This system proved unsuccessful in 1971 and the Australian Dollar moved to being a fixed peg to a moving peg. In 1974, concerns about the US. Dollar caused the Australian Dollar to move against a group of currencies called the TWI or the trade weighted index. The TWI continued until December 1983, when Prime Minister Bob Hawke and Treasurer Paul Keating from the Labour government decide to ‘float’ the Australian Dollar, otherwise known as the deregulation of the Australian financial system. This was due to the inefficiency shown in the financial system while it had government controls.

International influences on the Australian Dollar

Due to the increasing incidence of globalisation and deregulation, the Australian Dollar has been heavily influenced by international factors. These include overseas interest rate differentials, upward and downward movements of global stock markets, levels of global growth and demand, the level of overseas confidence and the incidence of geopolitical jitters around the world. An example of this would be the 2007 subprime market crash in the U.S. which affected international stock markets. The Reserve Bank of Australia's contractionary stance over 2007 has caused the Australian Dollar to reach 23 year high's against the U.S. Dollar. The other favourable condition for the Australian Dollar's popularity include the expansionary stance of the U.S. Federal Reserve due to the slowing of the U.S. economy.

The Australian Dollar now relies on its commodity export such as gold, iron, copper. Commodities now account for 1 billion Australian Dollars which is 55 percent of total export. Any changes within the market for commodities will affect the movement of the Australian Dollar. Over the past 15 years, the Australian Dollar has been steadily growing throughout the economic cycle and has come across many opportunities in world trade. China, Asia’s great economic engine has been growing above 8 percent per annum and demand for Australian commodity has been high. Australia also has the world’s largest reserves of uranium, which is another economic opportunity as the world begins to address the issues such as the global energy crisis.

Domestic influences on the Australian Dollar

The Australian Dollar is also influenced by domestic factors. These include, level of interest rates and expectations, level of economic growth and other economic indicators such as inflation. The Reserve Bank of Australia can also influence the level of exchange rates during times of heavy volatility by participating in the forex market as a buyer and seller of the currency. In most instances, the dirty float is meant to act as a buffer against an external economic shock before its effects become disruptive to the domestic economy.

Forextradinghq is determined to bring you up to date news regarding the Australian Dollar and the global and domestic issues that affect its movement. We also bring up to date news on the up to date news on the Major currencies

What is the Australian Dollar? What influences the Australian Dollar?

Fri, 10 Oct 2008 03:42:06 -0700

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Australian Dollar coin

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Australian Dollar is the official currency of the Commonwealth of Australia including several islands under its influence. Its ISO official code is AUD but it is also commonly written as the dollar sign with the letters AU. At present, it is estimated to hold the sixth place on the list of world’s most traded currencies. It shares about 5% of the world wide foreign exchange business.

The foreign currency traders all over the world like to trade in Australian Dollars because of the high interest rates in Australia. It is also greatly exposed to Asian economic markets and the commodities cycle. The general stability of the economic and the political system of the country also attracts the investors to invest in Australian Dollar.

Australia has a gigantic metal mining industry. Thus when the metal prices tend to go up, Australian Dollar also sees an upward trend. The Australian economy is highly facilitated by strong domestic economic activity. The economy of Australia is mainly dependent on the policies of the West. It’s a capitalist economy and has the GDP per capita income at par with the four leading economies of Western Europe.

Australia has reinforced its relations with China over the recent years. This association has helped a great deal in strengthening the economy of the country, thus escalating the value of Australian Dollar.

One thing which has affected the Australian Dollar in a negative way is the country’s trade deficit which went bad due to famine in some areas of the country and strong requirement to import. Another point of concern is the brisk increase in the domestic housing prices. This has raised the prediction that the Central Bank will have to increase the interest rates to keep the prices and inflation under control. This will stop the crisis from aggravating further and will help the economy to be secure.

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Australian Dollar Reaching its Peak

Tue, 06 May 2008 19:54:52 -0700

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Westpac has announced that Australian dollar shall reach its peak early next year. It has become the first bank to announce that the exchange rate for the Australian dollar vs. the US dollar shall reach 1.01 by early 2009.

Westpac’s predictions are the strongest amongst all other retail banks in Australia. It also estimated that it would take 6.5% increase to move the dollar to parity. Australian Dollar’s gain had been average 12% since past 5 years. According to Global head of Westpac, Bill Evans, the Australian Dollar shall peak above its parity in March 2009. It would hit US 96 cents in December this year itself. Currently, Australian Dollar is trading at 95 cents against the US Dollar.

"In the context of regular volatility in the Australian dollar, a 6.5 per cent move from current levels would be quite unremarkable," said Mr. Evans. "For the last five years the currency has averaged a 12 per cent gain," he added.

Mr. Evans also quoted that weakening US economy is one of the major contributing factors for strengthening of Australian Dollar. Commodity prices have also boosted the strength of Australian Dollar. Prices of gold and oil had also jumped over night which led to strengthening of the currency. Moreover, the demand in prices of coal and steel would also further escalate the demand for the Australian currency.

Westpac is amongst the four major banks in Australia and has been the first bank to claim the strengthening of currency. Mr. Gibbs from ABN Amro Australia also quoted that they are expecting a good run and the market is long.

Inflation has been on rise in Australia and Reserve Bank of Australia had raised its concerns over the same. However, it left the interest rates unchanged at 7.2%. It also kept the official cash rate also on hold for the second consecutive month.

Australian Dollar Falls to the Yen

Wed, 09 Apr 2008 03:54:08 -0700

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Financial experts at Suncorp see a possible fall in the Australian dollar by approximately 10% against the Japanese Yen this year, and the forecasted slow in economic growth and the central bank ending its rate increases doesn’t help much.

According to Suncorp, investors should consider selling Australian currency they might have now. According to Peter Pontikis, treasury strategist with Suncorp Metway, the Australian dollar will go as low as 85 yen, which is the lowest it has been since 96.

Peter Pontikis said, “For the next one or two quarters, the Aussie’s fundamentals will look very soggy,” as he believes that there has been a shift back in favor of the yen.

A government report recently showed the nations deficit as growing to a record high in February, and consumer confidence has recently dropped as well, this has caused Australia’s sixth largest bank to extend the year’s percent loss of 3.1% against the yen.

Financial analysts estimate that the currency will fall again in April after a report from the Reserve Bank of Australia put fort a statement that the inflation rate would fall back from a 16 year high, due to the economic growth slow down. This means that the central bank will probably not add to its four quarter point increase from last August.

The Credit Suisse Group index says that the current RBA will remain unchanged with its 7.25% benchmark interest rate, and will remain unchanged for the next 12 months.

The loss on the Australian dollar may not reach higher levels because of the belief that interest rates will still be able to interest investors, and that there will remain a global demand for the nations commodities, this being the consensus of the Macquarie Group Ltd, Australia’s largest publicly traded investment bank. According to Joanne Masters, a currency strategist for Macquarie, “The Australian dollar “is one of the standout investments in terms of currency markets,'” “We expect continued outperformance against the crosses.”

Australia’s 6.75% interest rate has made it a sturdy carry trade. A carry trade is where investors by funds in a country that has low borrowing costs and then invest in one with higher interest rates, but the risk they take is that when the currency market fluctuates by too much those profits will be gone.

Still, Pontikis from Suncorp-Metway says that the Australian currency has been very volatile for the last year and believes that it will continue to weaken against the yen. Investors are now discouraged from carry trades, because of the currency fluctuation. Pontikis has said, “You don't buy and hold the Aussie-yen any more, that world ended the middle of last year when you had 20-figure moves up and down, and that carried through into this quarter.”

Australian Dollar rises to a 24-year high

Fri, 29 Feb 2008 06:28:39 -0800

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The Australian Dollar has risen to its highest level in 24 years and the NZ Dollar has made its third weekly advance against the US Dollar on rising speculation of a wider interest rate advantage over the US. The AUD and the NZD are amongst the top five performing currencies against the US Dollar, with the Australian Dollar rising in forex trading for seven straight days which is its longest streak since April. The Australian Dollar has risen a total of 6.1 percent this month, the second best out of the 16 most traded currencies.

''There is a strong argument for the Australian dollar to go higher,'' said Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney. ``The yield advantage is dramatic.''

US Federal Reserve Chairman, Ben Bernanke, has indicated that the US Federal Reserve is ready to further cut its three percent borrowing rate in order to stimulate its weakening economy. A further interest rate cut will widen the interest rate differential between other central banks such as the Reserve Bank of Australia (RBA). The RBA is currently adopting a contractionary response due to rising inflation, therefore also assisting in the widening of the country's interest rate differential with the US. It is highly likely to raise interest rates when they meet in the 4th of March to 7.25 percent. This has certainly helped the Australian Dollar rise along with the NZ Dollar as investors using the currency carry trade investment. NZ also has a relatively high benchmark, currently at 8.25 percent.

In forex trading, the Australian Dollar has risen to a 24 year high against the US Dollar, trading to a high of 94.98 US cents, the most since March 1984, before trading at 94.66 cents later during the Sydney afternoon. The Australian Dollar traded at 94.12 the previous day. The currency traded at 99.19 against the Japanese Yen from 100.24. The NZ dollar traded at 81.53 US cents, from 81.40 US cents yesterday. It has risen 1 percent against the US Dollar this week. The currency traded at 85.49 Japanese Yen, compared with 86.70 Yen yesterday. The rising Australian Dollar may continue its trend in forex trading, providing that its inflation continues to rise alongside a weakening US economy.

Australian Dollar rises to a 3 month high

Tue, 26 Feb 2008 02:59:42 -0800

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The Australian Dollar rose to a 3 month high, being heavily supported by the expectation of another rate rise next month by the Reserve Bank of Australia. It has also been supported by the falling US economy, which is expected to continue its expansionary approach by cutting its interest rates, thus increasing the interest rate differential between the two countries. Traders have also resumed the carry trade in which they borrowed money from Japan and invested it in a country with a higher rate differential such as Australia or New Zealand.

''The Aussie will continue being supported by very hawkish expectations for the Reserve Bank of Australia. We fully expect a rate hike in March and then again in May,'' said RBC Capital Markets senior currency strategist, Sue Trinh.

In forex trading, the Australian Dollar has risen to a 3 month high at 92.72 US cents compared to yesterday's 92.44 US cents. It hit a 3 month high of 92.74 US cents, the highest since November. Australian Dollar traded at 62.60 Euros, up from 62.41 Euros.

Australian Dollar rises on rate outlook

Fri, 22 Feb 2008 04:44:22 -0800

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The Australian Dollar has risen to its second weekly gain on further speculation that the interest rate advantage the Australia has over the US will increase, increasing the demand for higher yielding assets. Alongside the New Zealand Dollar, the rising Australian Dollar is being supported as investors speculate on an interest rate cut by the US Federal Reserve by half a percent to 2.5 percent. On the other hand, investors are optimistic that the Reserve Bank of Australia (RBA) will raise interest rates by a quarter of a percent to 7.25 percent next month.

''The yield spread is working in favor of the Australian dollar,'' said Matthew Johnson,a senior economist in Sydney at ICAP Australia Ltd, a unit of the world's largest inter-bank broker.

''People are anticipating it to widen further,'' which will push the Australian currency higher.

If rates go higher, the rising Australian and New Zealand Dollars will be popular for investors seeking out the currency carry trade, where you borrow money from a country with low borrowing costs then invest in another country with higher rates. The Australian Dollar has been popular in recent years for the carry trade investment.

In forex trading, the Australian Dollar has risen to 91.95 US cents, in Sydney compared to a previous Asian trade of 91.80 US cents. The Australian Dollar had risen to 92.37 US cents on February 20, the highest in three months. The Australian Dollar also rose against the Japanese Yen, trading at 98.83 Yen from 99.26 Yen yesterday and 98.02 yen last week.

Australian Dollar rises to a 3-month high on rate outlook

Mon, 18 Feb 2008 04:41:08 -0800

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The Australian Dollar has risen to a 3-month high on speculation of another interest rate hike due to rising inflation. The Australian Dollar's rise was the best among the major currencies during this past month due to speculation of rising inflation and growth. A government report this week may show the lowest unemployment rate since 1974 is adding to signs wage increases may further rise. Investors have ignored the slowing global economy to buy the rising Australian Dollar to benefit from the biggest government bond yield advantage over US Treasuries in 17 years. The nation's two-year government bonds yield 5 percentage points more than similar maturity Treasury notes, near the 5.03 points reached last week, the widest gap since 1990.

''Tomorrow we get a speech from Assistant Governor Edey and Wednesday we get some very important labor data,'' said Tony Morriss, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney.

''Those events should lend some support to the Aussie in terms of the interest-rate outlook.''

The Australian Dollar has risen to a 3-month high in forex trading, climbing to 91.26 U.S. cents, the highest since the 9th of November, before trading at 91.18 cents. The Reserve Bank of Australia (RBA) is expected to increase its interest rates by 25 basis points to 7.25 percent when they meet on the 4th of March. It will be the fourth increase in eight months.

Australian Dollar higher in forex trading

Fri, 15 Feb 2008 04:51:46 -0800

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The Australian Dollar finished higher in forex trading today despite trading in a very tight range. The Australian Dollar was higher after being boosted by the release of the unemployment rate by the Australian Bureau of Statistics stating that it has fallen to 4.1 percent, seasonally adjusted, adding to the speculation of another interest rate hike by the Reserve Bank of Australia (RBA) next month. Concerns were raised about the US economy after Federal Reserve chairman Ben Bernanke indicated further cuts to US interest rates overnight. ''The FOMC will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,'' Dr Bernanke said. Easy Forex senior dealer Francisco Solar said the Australian dollar was trading in a ''very definable range''.

The Australian Dollar was higher in forex trading today despite trading earlier in a tight range. It traded at 90.42 US cents which is up from yesterday's 90.20 US cents. Mr Solar said the trend was still for the Australian dollar to go higher, given the possibility of not just one but two further interest rate rises in the coming months alongside future Fed rate cuts which will widen the interest rate differential further between the two nations. Australia's current interest rate is at 7 percent, currently a 12-year high. Their high borrowing rates has made it a popular choice for the carry trade investment.

Australian Dollar falls on weak US economy

Tue, 12 Feb 2008 21:50:20 -0800

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The Australian Dollar has fallen, breaking a three day rise due to increased concern that the slowing US economy will reduce Australian commodity exports and reduce local consumer demand. The Australian Dollar fell after the Reserve Bank of San Francisco President, Janet Yellen mentioned that the weak US economy many continue throughout 2009. Alongside this, the Australian Dollar also fell further after the release of the consumer confidence index, revealing a negative in February for the first time in 15 months. ''I'm not overly bullish on the Australian dollar,'' said Jim Vrondas, manager of corporate business at online foreign- exchange dealer OzForex Ltd. in Sydney. ''It will be hard work for it to get back to its highs as the global slowdown accelerates.''

Despite this, the Australian Dollar holds a wide interest rate differential over the US, making it more attractive to investors who want to perform the carry trade from Japan. The Reserve Bank of Australia added a 25 basis point increase recently to hit a 12 year high of 7 percent. The US added to the AUD's advantage by cutting their borrowing rates by 125 basis points last month.

In forex trading, the Australian Dollar fell at 90.45 US cents compared to a previous trade of 90.50 US cents. The Australian Dollar fall can be attributed to its sensitivity to expectations on global growth as exports of its commodities and resources contribute up to 17 percent of gross domestic product (GDP).

Australian Dollar Higher on rate outlook

Mon, 11 Feb 2008 21:13:32 -0800

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The Australian Dollar is higher, trading at its peak level in a week as investors were enticed to the nation's government bonds, offering the widest yield margin over US Treasuries since December 1990. The yield gap between Australian and US two-year benchmark government bonds has doubled the past three months to 4.86 percentage points, the highest in 17 years. Investors also found the Australian Dollar alluring as the Reserve Bank of Australia (RBA) mentioned that it is likely to raise borrowing rate again from an 11 year high in order to stop inflation from going out of control.''The Australian dollar continues to stand out given its rate spreads,'' said David Watt, a senior currency strategist at RBC Capital Markets in Toronto.

In forex trading, the Australian Dollar is higher as it traded to 90.59 US cents before trading at 90.45 US cents. The Australian Dollar is higher, also due to the fact of its widening interest rate differential against the US Dollar with the US Federal Reserve slashing its borrowing rate by 125 basis points last month. Another rate rise may also add to the falling appeal of the carry trade, which has been unwinded recently due to jitters in the world's financial markets.

Australian Dollar is higher on RBA outlook

Sun, 10 Feb 2008 19:12:00 -0800

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The Australian Dollar is higher after the Reserve Bank of Australia (RBA) said it was likely to increase interest rates in order to curb rising inflation. It was the second consecutive rise in forex trading as the RBA increased its inflation forecast in its quarterly statement, prompting investors to speculate on a futher interest rate rise to add to last weeks 25 basis point increase to a 12-year high of 7 percent. ''This hawkish statement is certainly Aussie positive as it gives some forward guidance that unless there's a further deterioration in the global outlook, higher interest rates will be required,'' said Joshua Williamson, a senior strategist at TD Securities Ltd. in Sydney. ''The Australian dollar is a high- yield story for the rest of the year at least.'' The higher Australian Dollar has been boosted over the past couple of weeks through interest rate rises by the RBA and interest rate cuts by the US Federal Reserve. The high Australian Dollar will be expected to rise further if its interest rate differential continues to widen against the US Dollar.

In the fourth quarter of 2007, the headline annual inflation rate stood at 3 percent while underlying core inflation rates were hovering at 3.5 percent. The Reserve Bank of Australia considers an inflation rate between 2 to 3 percent as a stable level.

In forex trading, the Australian Dollar is higher at 90.19 US cents, higher from a previous trade of 89.75 US cents.

Australian Dollar stronger on rate hike

Tue, 05 Feb 2008 03:56:04 -0800

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The strong Australian Dollar continued to gain against the US Dollar after the Reserve Bank of Australia (RBA) increased its borrowing rate to a 12-year high of 7 percent. The 25 basis point rise was the sixth interest rate hike in two years. The Australian Dollar fell for a brief period after the RBA announced the cut as forex traders locked in their gains before the rally. This morning, the high Australian Dollar continued its early rally, almost brushing 91 US cents, close to a three month high. Despite the rate hike, Richard Franulovich, A New York-based senior currency strategist with Westpac doubted the RBA's ability to control inflation. ''A 25 basis point hike is not enough to address inflation,'' he said. ''Could they come out and say they're done and they're comfortable with the policy? No. They've lost control of inflation.''

In forex trading, the Australian Dollar was higher against the US Dollar, trading at 90.70 US cents compared with 90.65 US cents before the rate hike was announced. The strong Australian Dollar is expected to rise further on speculation that inflation cannot be controlled, fueling a further possibility of another rate hike in the near future.

Australian Dollar stronger in forex trading

Mon, 04 Feb 2008 05:30:56 -0800

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The Australian Dollar is stronger in forex trading today after the release of important economic data supported the case for another interest rate rise by the Reserve Bank of Australia (RBA). The Balance of Trade figures released today revealed that consumer spending stayed at a high level in December despite two interest rate rises during the last six months of 2007. The house price index, released by the ABS showed an increase of 12.3 percent during the year to the month of December. The released data added weight to the argument to increasing interest rates when the RBA meets on Tuesday while it also added upward pressure to the strong Australian Dollar. ''The Aussie is looking very perky today where it's been supported by very strong domestic data with the trade deficit narrowing and house prices accelerating,'' RBC Capital Markets senior currency strategist Sue Trinh said.

The Australian Dollar was strong in forex trading today amidst the release of economic data. It was heavily supported, trading up to 90.43 US cents compared to last Friday's close of 89.54 US cents. The Australian Dollar has been supported also from the widening interest rate differential between it and the United States. The US Federal Reserve recently cut its borrowing rates by a total of 1 and a quarter of a percent this month.

Australian Dollar stronger on possible rate hike

Sat, 26 Jan 2008 20:43:45 -0800

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The Australian Dollar, along with the New Zealand Dollar headed for a weekly gain on the possibility of further rate hikes, increasing the interest rate differential against the US. Inflation is at its fastest pace in 16 years, prompting a possible interest rate hike if global stock markets rise. New Zealand's central bank also expressed the possibility of raising interest rates to curb its growing inflation rate. ''The Australian dollar is getting additional support from increased confidence that rates are going up,'' said Ray Attrill, director of foreign-exchange research at Forecast Ltd. in Sydney. ''Every hour of every day that stock markets aren't going down, traders are getting more confident rates will rise Feb. 5.'' The Australian and New Zealand Dollars further strengthened as the US Federal Reserve unexpectedly slashed U.S. interest rates on the 22nd of January by three quarters of a percentage point to 3.5 percent. Australian interest rates are currently at an 11-year high of 6.75 percent and New Zealand's benchmark at a record 8.25 percent.

The Australian Dollar was the third best performer in forex trading amongst the 16 most traded currencies. Buyers have supported the Australian Dollar as it traded at 88.42 US cents compared with 87.23 US cents in the previous day's trade. Buyers also supported the New Zealand Dollar, trading at 77.21 US cents compared with a previous trade of 76.70 US cents.