Forex Strategy: Australian Economic Indicators

The Australian Dollar is widely traded on the foreign currency market. Including Australia, 8 countries use the Australian Dollar in total. Australia is the biggest of these 8 countries (Cocos Islands, Heard and McDonalds Islands, Kiribati, Nauru, Norfolk Island, Tuvalu, and Christmas Island); therefore it contributes the most to the value of the Australian Dollar in the world of forex trading. Here are some of the most telling basic Australian economic indicators that should help the forex strategy of anyone making transactions with the Aussie Dollar.

Economic Indicators

Reserve Bank of Australia

The Australian Dollar and its monetary system are managed by The Reserve Bank of Australia (or RBA). The RBA exists to control inflation and maintain the monetary system of the country, similar to the role of other large central banks. The RBA is in control of raising interest rates. Foreign investors are usually more interested in purchasing the domestic currency when interest rates rise on forex trading platforms. When interest rates rise, it is only a matter of time before the currency becomes more valuable, which in turn attracts investors. So paying attention to news and reports regarding the RBA is a crucial step in your analysis of the currency. This is not specific to Australia’s Reserve Bank; most modern currencies increase in value when their own interest rates are raised. And nice interest rates attract wealthy buyers in fx trading.

Gross Domestic Product

Overall growth is good to consider when considering investing in a currency with a forex broker.  The GDP of Australia in 2010 was almost double what it was in 2005. The largest industries in Australia are agricultural, mineral, and service. Consider these industries in your analysis, as any changes in these industries can be key economic indicators of future conditions. For example, severe weather conditions affect the service industry negatively, impacting forex trading value.

Unemployment Rate

As of 2011 the unemployment rate is half that of the United States and various European countries. Although the unemployment rate is not a direct factor in currency value in forex trading, it is a catalyst for a certain timeline of events: as employment increases, so does spending, and both can lead to inflation, which usually causes central banks to raise interest rates (in order to combat inflation), which can strengthen the value of that currency.

Trade Balance

Although Australia does have some strong industries, it also currently has one of the largest trade deficits in the world. Theoretically a trade deficit weakens the value of that currency on forex trading platforms. However, many countries, including the United States, have managed large trade deficits over many years without weakening the value of their currencies. In the forex market, Australia’s interest rates are some of the highest available; offering high interest rate tends to be how countries with large deficits maintain the value of their currency in forex trading.

Australia’s biggest trade partners are currently China, U.S., and Japan. Main exports include agriculture like wheat and wool, minerals like iron and gold, and natural gas and coal. Main imports include basic electronics, computers, transportation equipment, and machinery.

Quick Tip:

Australian is the 3^rd richest place in the world with gold; therefore when commodity prices increase, its currency tends to strengthen.