If you have been wondering, why is Australian dollar going up? I have got you covered. Here’s brief detailed information. Have a read.
Also, make sure to check out our insight on the purchase of gold in Australian Markets.
Why is Australian Dollar going up?
Ending a turbulent week, Asia-Pacific markets are expected to trade in a mixed manner as rising commodity prices put the world’s economic growth narratives in jeopardy and AUD/USD bulls push higher after setting a new 2022 high.
As markets continue to oscillate, the final trading day of the week in Asia-Pacific markets may be mixed. US stock indices declined overnight, with the high-beta Nasdaq 100 index declining by 1.46 percent to lead the way lower (NDX).
As investors exchanged their stocks for cash and Treasury bonds, the US Dollar DXY index climbed to its highest point since June 1, 2020. We are going to access the factors that answer why is australian dollar going up.
After a US-listed Chinese technology ETF fell more than 5% overnight, the largest one-day percentage drop this year, Chinese stocks may underperform among Asian equities. If commodity prices keep rising, China’s economic growth may be threatened.
Iron ore and copper prices experienced significant purchasing, and aluminum reached a new record high. In comparison to most of its key competitors, this strengthened the commodity-linked Australian Dollar. AUD/USD reached a new record high for 2022, while EUR/AUD fell to levels last traded in October 2017.
The spread between the two rates, used to calculate the 10-year/2-year Treasury curve, dropped to 31 basis points overnight, the lowest level since March 13, 2020. This flattening can be interpreted as a lack of confidence in the Fed’s capacity to control inflation while sustaining economic growth.
A wide range of commodities, including metals, grains, and energy items, have increased as a result of the sanctions imposed on Russia. The news that the US and Iran are in the final stages of reviving the 2015 nuclear deal caused the prices of WTI and Brent crude oil to drop after reaching new highs early this morning.
Even while problems still exist, a deal would allow much-needed Iranian oil barrels to enter the market. Russian oil has not been targeted by Western sanctions, but many shippers are reluctant to accept deliveries.
The consumer price index (CPI) for South Korea reported an increase of 3.7 percent year over year for February, up from 3.6 percent y/y in January. The unemployment rate in Japan increased to 2.8% in January from 2.7%.
Australia will get a final update on retail sales for January after the disappointing preliminary reading of -4.4 percent. In other news, inflation statistics will be released in the Philippines and Thailand, and February PMI numbers for India will decline. The January retail sales data for Hong Kong is also forthcoming.
And Finally, Here’s our insight on why is Australian dollar going up?
The AUDUSD is rising as prices overnight broke over the 200-day Simple Moving Average (SMA) and advanced to new annual highs. If the bulls lose their impetus, support could come from the important moving average.
If prices continue to rise, the next significant mark would be the October 2021 swing high. That is very close to the Fibonacci extension of 161.8 percent from the swing high/low in January. The MACD oscillator is pointing higher while the RSI is getting close to the 70 overbought 65 levels.
- Despite having only the 50th greatest population and the 14th largest GDP in the world, Australia is home to one of the top five most traded currencies in the world.
- The Reserve Bank of Australia (RBA), the country’s central bank, is seen as somewhat conservative, prioritizes containing inflation, and maintains relatively high-interest rates.
- The geology, wealth of natural resources, proximity to Asia, geography, and government policy of stable high-interest rates and economy all contribute to Australia’s appeal.
- Due to its strong relationship to the price of commodities, which have a long history of being volatile, Australia’s currency is countercyclical and highly volatile.
- China has recently increased its competition with Australia as the Asian country continues to be a desirable alternative for investors in other parts of Asia who want to transfer funds outside.
Why is Australian dollar going up?
Australia is not a particularly huge nation; as of 2019, it ranked 50 in terms of population, 25 in terms of the value of its exports, and 14th in terms of GDP globally. It is also less than one-tenth the size of the United States.
Nevertheless, one of the top five most traded currencies on the market is the Australian dollar. The Australian dollar has only been a freely floating currency since 1983, which is an interesting fact.
The 3 G’s — geology, geography, and government policy — are to thank for Australia’s popularity among currency traders. The corporation has access to a variety of in-demand natural resources thanks to geology, including oil, gold, diamonds, agricultural products, iron ore, uranium, nickel, and coal. Geographical factors have positioned the business as a top trading partner for numerous Asian economies that are expanding quickly and have almost endless resource needs. Government policy has resulted in rather stable high-interest rates, a stable government and economy, a lack of currency market interference, and a Western approach to business and the rule of law that hasn’t traditionally been usual in the region.
The central bank of the issuing nation controls (or at least has significant influence over) each of the major trading currencies in the world. The Reserve Bank of Australia is responsible for the Australian dollar (RBA). Being a very conservative organization, the RBA does not regularly intervene in the currency market. Furthermore, the RBA takes its responsibility to contain inflation—a mission that almost all reserve banks share—very seriously, and Australia regularly has some of the highest interest rates in the industrialized world. Kind of helps us put in perspective why is Australian dollar going up?
Factors Specific to the Australian Dollar. Let’s analyze them and understand why is Australian dollar going up.
Australia’s extremely high reliance on commodities and its comparatively tiny domestic industrial base makes it difficult to control interest rates and inflation there. Large and ongoing current account deficits have resulted as a result during most of Australia’s post-World War 2 history. Although Australia’s debt is not high relative to GDP, rising public spending raises the possibility that it could be a problem.
The Australian dollar is likewise unusually countercyclical and erratic. The majority of the large developed economies trade together (at least in part because of the close economic ties between them), but Australia’s economy is unique. The majority of Australia’s exports, which primarily consist of manufactured goods, are sent to developing Asian economies. Despite this, Australia’s economy is significantly more dependent on the price of commodities than the other major economies in the world, and in the past, the volatility there has caused a tremendous deal of volatility in the currency.
Carry Trade: Australia frequently makes up the other half of trades that began with the Japanese yen. Australian dollar-denominated assets have proven to be popular investments for carrying traders because of the disparity between the high-interest rates in Australia and Japan and the relatively close time zone overlap between the two countries. Due to this connection, speculative reactions to changes in interest rates in either nation may have a disproportionate effect on the currency. Even if the currency pair doesn’t move a single cent, this method can still generate profits.
Regional aspects For its extraordinarily stable administration and generally pro-business environment, Australia frequently distinguishes out in its region. Nevertheless, the rise of China is having an influence on Australia’s position in the region since Chinese investors looking to transfer their assets outside of their home nations are more likely to choose China than Australia. Australia’s trade and economic performance are significantly impacted by China and India as well. Australia imports a lot of items made in China and India, while those two nations, in turn, import a lot of industrial and consumer goods made in Australia.
The conclusion to Why is Australian Dollar going up
The majority of models rarely succeed for longer than brief periods of time because it is famously difficult to predict currency rates. Long-term trends are influenced by economic conditions, even if models based on economics are rarely relevant to short-term traders.
Australia is a small, somewhat rich nation that is heavily dependent on agricultural and mining products. Australian firms find it challenging to compete due to high lending rates, uncompetitive expenses, and a lack of a robust manufacturing infrastructure in the nation. In light of this, it is expected that the Australian dollar will continue to fluctuate based on the price of commodities, the well-being of significant Asian resource importers, and its high-interest rates. Even while Australians should be worried about the status of their economy, it is doubtful that the Australian dollar will become less important in the region as the Chinese yuan does.
The answer to why is Australian dollar going up, is multifactorial. It depends more factors listed above that I feel should put it in a perspective and help us commemorate Australian Economy.