Australia, the official name of the Commonwealth of Australia, is located in the southern hemisphere, southeast of Asia.

Australia is the largest island in the world and the only country in the world that occupies the entire continent.

Before Europeans settled in Australia in 1788, indigenous peoples occupied most of the country.

Since 1788, people from all over the world have emigrated to Australia, making it one of the most culturally diverse countries in the world. Now Australians come from 200 different countries and regions.

Finally, and most importantly, Australia is famous for its excellent, ashes actors. These actors include Mel Gibson in Brave Heart, Hugh Jackman in Wolverine, Ledger (Health Ledger) in The Clown.

Neighboring countries: New Zealand, Papua New Guinea, Indonesia
Area: 2,969,907 square miles
Population density: 7.3 people per square mile
Capital: Canberra (population 358,222)
Head of State: Queen Elizabeth II
Head of Government: Prime Minister Julia Gillard
Currency: Australian Dollar (AUD)
Main imports: machinery and transportation equipment, electric current and communication equipment, crude oil and petroleum products
Main exports: ores and metals, food and livestock, fuel, transportation machinery and equipment, Hugh Jackman, Nicole Kidman, Health Ledger
Import partners: China 19.2%, US 12.1%, Japan 7.8%, Singapore 5.3%, Germany 5.1%
Export partners: China 26.4%, Japan 19.1%, South Korea 9.2%, India 6.4%, Taiwan 3.7%
Time zone: East Ten District

Economic overview

Compared with G7 countries, Australia’s economy is relatively small. However, according to data published by the World Bank, on an individual basis, Australia’s is even higher than that of the United Kingdom, Germany, or even the United States!

In the past 15 years, the average annual growth rate of the Australian economy has been 3.6%, which is higher than the world benchmark of 2.5%. No wonder it ranks third in the Legacy Institute Prosperity Index 2011!

Australia’s economy is service-oriented, and more than 70% of it comes from finance, education, tourism and other sectors.

Despite its strong export industry and rapid growth, Australia is notorious for its persistent current account deficit. This means that Australia has exhausted a lot of resources from other economies to meet its domestic consumption needs.

Monetary and fiscal policy

The Reserve Bank of Australia is the competent authority for Australian monetary policy. The purpose of the RBA is threefold:

  1. Maintain exchange rate stability
  2. Ensuring growth
  3. Maintain full employment

In order to achieve these goals, the Reserve Bank of Australia believes that the country’s inflation rate must remain between 2% and 3%. By strictly controlling the degree of inflation, the price of the country’s currency can remain stable, thereby ensuring stable economic growth.

How does the Reserve Bank of Australia control inflation? Two methods: adjusting the currency exchange rate and open market operations.

The currency exchange rate is the interest rate charged by banks to provide overnight borrowings to other financial institutions.

In open market operations, the RBA controls the supply of funds by buying and selling government loans and other financial assets. Except for January, the RBA holds monthly regular meetings to discuss changes in monetary policy.

To make this easier to understand, let’s take an example. If Australia’s inflation rate rises faster than the Fed wants, in order to suppress the high inflation rate, the RBA decided to increase the exchange rate of the currency notes so as to increase the cost of borrowing.

Generally, this approach will reduce borrowings and reduce the amount of funds in circulation. Basic supply and demand tell us that the less things are, the higher the price.

Understanding Australian Dollar

Although the Australians will confuse the season, they all get up early and start to enter the trade. This is because the Australian market is the first one opened every week. Like the people who live there, Australia’s national currency, the Australian dollar, is also called Australian (Aussie).

I am called a commodity dollar for a reason…

An important feature of the Australian dollar is its high correlation with the price of gold. The reason is that Australia is the largest gold producer. Therefore, as long as the gold price fluctuates, the Australian dollar will also change.

…I am one of the important candidates for arbitrage trading

Among the major currencies, the Australian dollar is known for its high interest rates. This makes it one of the favorites in arbitrage trading. Arbitrage trading is the practice of buying high-interest-rate currencies with low-interest-rate currencies.

I am awake for only a few hours in a day…

Changes in the Australian dollar mainly occurred during Asian trading hours, when relevant Australian data was released.

…Bad weather is my worst enemy!

Australia is dominated by a commodity economy, and poor weather conditions will limit Australia’s economic growth, leading investors to short-sell the Australian dollar.

How much does the weather affect the Australian dollar?

During the Australian drought in 2002, the Australian dollar/dollar fell to 0.4770-that is almost half of its current exchange rate.

Australia’s important economic data

Consumer Price Index: Because the RBA’s main objective is to control inflation, the Consumer Price Index, which measures changes in the prices of goods and services, is closely monitored by the RBA.
Trade balance: Australia’s trading sector is very active, so currency dealers and bank officials are very concerned about changes in the country’s import and export levels.
GDP: This indicator measures Australia’s economic situation. Positive readings represent economic growth, and negative readings represent economic contraction.
Unemployment rate: The unemployment rate tracks how many people in the Australian workforce are unemployed. The number of unemployed is closely related to the performance of economic activity. A person without a job means that he has less money to spend.

What factors affect the trend of the Australian dollar

Economic and interest rate outlook

The Australian dollar is heavily influenced by macroeconomic factors such as monetary policy, interest rates and domestic economic data.

Special attention should be paid to the prospect of interest rate changes when trading in Australian dollars. RBA officials’ interest rate-related comments will have a significant impact on the Australian dollar.

China’s economic situation

Over the past 10 years, China has had excellent luck and has seen substantial growth figures. In order to produce products, China imports a large amount of raw materials from Australia, such as coal and iron ore.

For China to purchase raw materials from Australia, it must first convert its currency to Australian dollars. This means that the increase in demand for Chinese goods has lowered the price of the Australian dollar.

Similarly, the reduction in demand for Chinese goods will cause the Australian dollar to fall.

New Zealand data

To a lesser extent, New Zealand economic data will also affect the price action of the Australian dollar. Note that New Zealand’s economy is very similar to Australia’s, which makes their currencies positively related.

In fact, the relationship between the two countries is sometimes referred to as “Pan Tasman”, which indicates the closeness of the relationship between the two countries by alluding to the Tasman Sea between the two countries.

Therefore, we must pay attention to New Zealand’s important economic data, because it will affect the trend of the Australian dollar.

AUD/USD trading

The number of AUD/USD transactions is measured in Australian dollars. A standard lot is A$100,000 and a mini lot is A$10,000.

The value of each point is denominated in US dollars. In the exchange rate expressed in AUD/USD, the four decimal places are one point.

Gains and losses are denominated in US dollars. In the case of 1 standard lot, the value of each change is $10; for the mini lot, the value of each change is $1.

The calculation of margin trading is based on US dollars. For example, if the current exchange rate of AUD/USD is 0.9000 and the leverage ratio is 100:1, the minimum margin required to trade a standard lot should be $900. However, as the AUD/USD exchange rate rises, the demand for USD margin will increase. Conversely, the amount of USD margin required will be reduced.

AUD/USD trading tips

Because the Australian dollar is an arbitrage transaction, that is, one of the best candidates to buy high-interest-rate currencies and sell low-interest-rate currencies, the AUD/USD hand cross currency has a great influence.

How do you use this?

If you find that AUD/JPY breaks through an important technical support level, it means that you should short AUD/USD.

Another point to consider when trading AUD/USD is New Zealand’s economic data. Because Australia and New Zealand are adjacent and have related trade relations, positive New Zealand economic data will help drive the rise in Australian dollar prices.

This means that the unexpected New Zealand economic report can be seen as a signal to buy the Australian dollar. On the contrary, poor performance of New Zealand’s economic data means that the Australian dollar should be sold.

Finally, take a moment to look at changes in commodity prices, especially gold prices. In most cases, changes in the price of gold will guide changes in the price of the Australian dollar.

This means that once the price of gold rises, AUD/USD will soon rise! Of course, if the price of gold falls, the Australian dollar will also fall.