The forex Australia market offers many traders a method of making money either part-time or full-time. It is a massive market, but is also extremely competitive and complicated. Trading houses, large banks and financial funds control the market and they are able to rapidly add any new information to a potential price adjustment. This makes it difficult for a retail trader to know who they are actually trading with at any given point.
This is not a market to enter if you are unprepared and not willing to learn as much as you possibly can, at least about the seven major currencies.
The Australian Dollar
Australia is ranked in the top 20 internationally in terms of its gross domestic product and value of exports. It is one of the five currencies most frequently traded in this financial market. The forex Australia market is full of potential.
This country owes its popularity to government policy, geology and geography. Australia has a wealth of natural resources that are constantly in high demand, such as oil, agricultural products, uranium, coal, iron ore and gold. It is perfectly situated geographically for trade with the very fast growing Asian economies. Its government is stable and has maintained high interest rates, a stable economy and has mostly remained outside the currency market realm.
Although the Reserve Bank of Australia has maintained high interest rates over the years, it was not enough to prevent the decline in the housing market. The Reserve Bank has its own problems in dealing with the unpredictable commodity cycle and the impact it has on the country’s capital account and trade balance.
What Drives Forex Australia?
Economic variable such as interest rates often drive the trades made in this market. However, other economic factors should be taken into account to determine a more accurate price movement prediction. The speculative nature of the market often moves currencies, similar to the manner in which investor pessimism or optimism moves the stock market. This speculation and emotion often drives currency prices to below or above what the fundamental factors indicate.
Australia has several other factors that traders have to consider, beside the normal major economic releases and data. The country’s economy is very dependent on its commodities, metal and grains. This means that any reports on the weather, crop planting, harvesting, input from mining and metal prices have the power to move the Australian dollar. This data is quite easy to access as the Australian Bureau of Agricultural and Resource Economics and Sciences regularly issues free reports.
In view of this, the dollar is very closely linked to the country’s exposure to Asia and its commodity cycle. The demand for natural resources from China and India, with a lower demand from Japan, has often been a factor in increasing the value of the Aussie dollar. The downside to this is the dollar often tends to decline as soon as the demand for commodity starts to decrease.
The control of inflation and interest rates is worsened by the heavy reliance of the country on commodities. The country also has an extremely small industrial base. It does not produce very much by way of manufacturing for export and most of its export trading is done with the Asian economies. The volatility of the commodities market places the Australia dollar in a precarious position.