The Australian dollar is the official currency of Australia, with AUD as its abbreviation. Australia’s monetary policy is highly conservative, benefitting the AUD to a great extent. One of the main reasons is that the government does not infuse cash as an economic stimulus during times of recession. This increases the country’s interest rates, making it attractive for investors. The Australian dollar is one of the most popularly traded currencies in the world, especially with the U.S. dollar (USD).
All you need to know about the Australian Dollar (AUD)
The official currency of Australia, the Australian dollar is abbreviated as AUD. Apart from Australia, it also serves as the official currency of a few of the neighboring countries including Christmas Island, Tuvalu, Papua New Guinea, Nauru, Norfolk Island and Cocos Islands.
Till 1966, Australia’s currency was the Australian pound after which it was replaced by the AUD. In the international markets, AUD is also known as the Aussie or the Aussie dollar. Australia became a highly popular country among traders because of various favorable factors such as geography, geology and government policies.
Apart from being located on good trade routes, Australia is also one of the richest countries in the world when it comes to natural resources. It has vast reserves of coal, metals, diamonds, wool and meat. In 1983, the Australian dollar became a free-floating currency.
Why do investors prefer AUD?
When the prices of consumer commodities increase, the AUD and the Australian economy usually gain from it. When the same thing happens in the United States and other countries that manufacture finished commodities, the country faces rising costs in common goods due to inflation. This makes the AUD stronger in times like these. And this is what makes the AUD attractive to investors who then take a long position on the currency.
One of the most highly favored currency carry trade relationships was between the AUD and Japanese Yen (JPY). This was mainly due to the fact that after the Great Recession, the Australian government did not infuse cash into the economy to stimulate it like the U.S. government, the Bank of Japan, and the European Central Bank did. This increased the interest rates in Australia compared to other countries, making it an attractive option for trading long.
The AUD-USD relationship
The Australian dollar is one of the most popularly traded currencies in the world, especially with the U.S. dollar (USD). International currencies are always traded in pairs and each currency is denoted by three letters which form its abbreviation.
The AUD moves against other currencies when economic data such as the country’s GDP (gross domestic product), industrial production, retail sales, trade balances, inflation, etc., are released. Government policies, elections, natural disasters, etc., also affect the relative price of the Australian dollar. They also affect the market price and output for various crops and metals.
The Australian and U.S. dollars (AUD-USD) pair is usually negatively correlated with the U.S. and Canadian dollar pair (USD-CAD) as well as the USD-JPY pair. This is mostly because the quote currency in these instances is the dollar. The AUD-USD pair often runs opposite to the USD-CAD pair, since both AUD and CAD are commodity block currencies. AUD exchange rates are also impacted by the demand for the country’s natural resources, in particular, from Asian countries such as India and China.
