Forex Trading: Trading the AUD

According to the


International Monetary Fund, in 2010 Australia ranked thirteenth


internationally in terms of GDP, 20th


for the value of its exports, and fiftieth for the size of its


population.

Yet, in


spite of only having 0.33% of the planet's


population, the Australian dollar is among the 5 most


frequently traded currencies in the foreign exchange


market. The popularity of the Australian dollar among


foreign exchange traders is due to


geography, the land, and government


policy.

Geography



 Australia is the most


approvingly situated Western country re south-east Asia. Higher populations and growing economies have


led to an insatiable demand for


resources, and Australia's resources are the most accessible. India and China have potent


impacts on Australia's trade and business performance,


along with the value of the Australian dollar in


the foreign exchange market, with the Asian


countries importing Australian commodities and Australia importing


Indian and Chinese machinery and consumer


products.

The


land

 Australia has an


enormous range of coveted natural resources such as gold, diamonds, oil, uranium, nickel, iron ore, agricultural


goods and coal.

Government policy

 Australian government


policy has led to a stable central authority and


economy, and a lack of intervention in the foreign


exchange market, along with a Western approach to


business and regulation that has not always been


typical of the Asia-Pacific area.

 The Reserve Bank of


Australia ( RBA ) is quite conservative and does not


intermediate frequently in the foreign


exchange market. And, due to inflationary concerns, the RBA has


maintained Australia's interest rates as some of the highest in the developed


world. In foreign exchange, high


interest rates make the Australian dollar a


popular currency with traders who use the carry trade,


sometimes pairing it with a low-yielding currency like


the JPY.

 Factors that impact the Australian


dollar

 Along with


the economic and political variables that impact


foreign exchange rates, some elements are totally unique to the Australian dollar.

 Economically,


Australia stands out due to its heavy dependence on


commodities, with mining representing over Five pc of its GDP


and agriculture representing 12%. Although this


dependence led to Australia weathering the


global financial crisis better than many western economies, Australia


has never developed a robust manufacturing


sector; leading to a great amount of foreign debt,


a large current account deficit


and high interest rates.

 As Australia's


economy is driven by commodities; reports on weather, crop planting,


crops, metal costs and mine output; all


impact the Australian dollar, therefore are valuable


to fx traders trading on


the Australian dollar.

 This


dependency also makes the Australian dollar exposed to changes in the Asian markets,


especially India and China, with export


demands pushing the Australian dollar higher, only to fall when the demand


fades.

 Higher commodity


costs often create inflationary pressures in


developed countries, leading to the Australian economy


looking healthier for foreign


exchange traders when resource costs raise concerns


about the sustainability of expansion in

Japan, North America and Europe. This also makes the


Australian dollar a preferred


alternative for traders needing to go long on commodity


exposure and / or Asian resource demand.

The Australian dollar and fx

 Most major developed


currencies trend up and back down together, partly


due to trade links between them. The Australian


dollar, by contrast, enjoys some


autonomy from other important currencies: its health is


closer linked to commodity costs and commodity price volatility


is mirrored in AUD


volatility.

 This means the


AUD is likely to


continue to trade based on commodity costs, and it


is not likely to lose its


importance in the forex market, even


as the Chinese yuan becomes more important.









Remember that CFDs and forex are leveraged products and can lead to losses that exceed your 1st deposit. CFD trading may not be appropriate for everybody, so please ensure that you fully understand the risks concerned.