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The Australian Dollar: A Deep Dive Into The Currency Market

  • Written by Whats On Australia

Welcome to a comprehensive exploration of the Australian Dollar (AUD) and its position in the currency market. 

History of the AUD

The Australian Dollar had a fixed exchange rate until 1983 when the Australian Labor government decided to float the currency. Prior to that, from 1946 to 1971, the AUD was part of the Bretton Woods system, where it was tied to the British Pound. In turn, the British Pound was fixed to the US Dollar, and consequently the Gold supplies. However, as the Bretton Woods system started to break down, calculating the value of the AUD adopted a floating system, linked to the US dollar.

The AUD's popularity among currency traders

The AUD is ranked as the world's fifth most frequently exchanged currency and is popular on various forex platforms including tradingview brokers australia. The Reserve Bank of Australia (RBA) has consistently set high-interest rates compared to other developed nations, making the AUD an attractive choice for carry traders looking for a currency with significant returns. Additionally, the AUD's strong liquidity further adds to its appeal to traders.

A general forecast for 2023

Throughout 2023, the AUD peaked at 0.72 USD in late January, only to decline thereafter and maintain a range of approximately 0.65 to 0.68 USD.

Numerous factors influence the AUD's value, but a prominent reason behind its 2023 depreciation has been the decline in commodity prices. This price drop has been spurred by China's slower-than-anticipated economic rebound following the pandemic. Given that Australia's economy heavily relies on commodities exports and that China is its largest trade partner, the AUD has consequently weakened against other major currencies. 

Nonetheless, after several challenges, experts are cautiously optimistic about the future performance of the AUD. However, expected upcoming interest rate hikes and a looming global recession are potentially detrimental factors to consider over the upcoming six months. 

AUD vs. the US Dollar

At the beginning of 2023, the AUD was valued at 0.68 US dollars (USD). It experienced a slight increase in June, reaching 0.687 USD, but later dropped to a new low of 0.645 USD. According to information from the Commonwealth Bank, the drop in AUD can be attributed to falling commodity prices and economic slowdown in major economies contributing to the weakening of the AUD/USD pair.

However, other major Australian banks have a slightly more positive outlook. Westpac forecasts AUD to trade at $0.69 in September and December 2023, while NAB forecasts an exchange rate of AUD 1 to $0.74 by the end of the year.

AUD vs. the Great British Pound

In 2023, the AUD experienced a decline in value against the pound, falling from 0.57 to 0.53 GBP. Deciding factors affecting the AUD/GBP exchange rate this year include the strength of China's economic recovery, including stimulus measures taken by the Chinese government, as well as persistently high inflation spread across the UK. According to NAB's projections, it is predicted that by September 2023, 1 AUD will be valued at 0.57 GBP, followed by a further decline to 0.56 GBP by December 2023. However, Westpac foresees the AUD trading at 0.54 GBP by the end of the year.

AUD vs. the Euro

Recent political events have created an unstable situation in Europe thus leading to fluctuations in currency exchange rates. During this time, the AUD gained strength against the euro. However, economists are now predicting that the AUD/EUR rate will stabilize throughout the rest of 2023. According to NAB's forecast, the AUD is expected to trade at 0.63 EUR for the remainder of the year. The Commonwealth Bank also anticipates minimal changes in the AUD/EUR rate.

Currencies to keep an eye on when making predictions about the AUD

When predicting the AUD, it is important to keep an eye on certain currencies, such as the New Zealand dollar (NZD), the Japanese yen (JPY) and the Chinese yuan (CNY). New Zealand and Japan are important regional partners of Australia from a historical perspective, the AUD has shown strength against these currencies. In addition, the AUD is greatly affected by changes in China's economy.

Organisations to follow when making predictions about the AUD

When it comes to predicting the value of the AUD, there are several organisations to keep an eye on. 

1. Reserve Bank of Australia (RBA): The RBA plays a crucial role in shaping Australia's monetary policy. It issues statements and makes decisions regarding interest rates in the country. 

2. Australian Government and Department of Finance: The policies implemented by the Australian Government can have a direct impact on the country's economy and, consequently, the value of the AUD.

3. US Government: As the AUD is often traded against the US Dollar, events and policies from the US Government can influence the value of the AUD.

4. Federal Reserve (Fed): The Federal Reserve of the United States plays a crucial role in controlling the monetary policy of the US and consequently, the AUD. 

All in all, the AUD holds a prominent position in the currency market due to Australia's stable economy, strong financial system, and close ties with Asia. While predicting currency movements is challenging, there are several economic indicators, international currencies and institutions you can monitor. Stay informed and navigate the currency market with confidence.

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