The Australian Dollar

It is important to be aware of the background of the currency pairs you choose to trade. This is a background piece about the Australian Dollar and the factors that influence the Aussie currency

• Accounts for approximately 5% of the total volume of foreign exchange transactions (approximately 1.9 trillion dollars a day).
• Its popularity is due to the fact that there is little government intervention in the currency and a general view that Australia has a stable economy and government.
• The Australian dollar is now governed by its economy’s terms of trade. Should Australia’s commodity exports (minerals and farms) increase then the dollar increases. Should mineral prices falls or when domestic spending is greater than exports, then the dollar falls. The resulting volatility makes the Australian dollar an attractive vehicle for currency speculators and is the reason why it is one of the most traded currencies in the world despite the fact that Australia only comprises 2% of the global economic activity.
• The Australian dollar has usually served as a proxy for gold due to the fact that Australia is the second largest producer of gold after South Africa. Fluctuations in the price of gold have seen corresponding rise and falls in the Australian dollar.
• As well as its relationship with gold, like the Canadian and the New Zealand dollars, the Australian dollar is a commodity currency.
• Since the floating of the Australian dollar in 1983, the currency has fluctuated in an average range of 10 cents a year.