About AUD

AUD is the acronym for the Australian dollar, also known in the international currency market as the Aussie dollar. In 1966 the AUD replaced the Australian pound, and in 2016 marked its 50th anniversary as a currency. The Australian dollar is the official currency not only in Australia but also in many of independent South Pacific countries and territories including Papua New Guinea, Christmas Island, the Cocos Islands, Nauru, Tuvalu and Norfolk Island. The AUD developed into a free-floating currency in 1983. Its popularity among traders is related to its three Gs: geology, geography and policy of government, in terms of natural resources. Australia is among the richest countries in the world and its products include metals, coal, diamonds, meat and wool. Australia also represents a regional power in Asia.

About the EUR

EUR is the currency term used by the general industry to denote the euro, the official currency of 19 out of 28 European Union (EU) countries. There will be 27 nations in the EU as a result of the Brexit vote, as the UK exits the union. The name “euro” was chosen in 1995. The currency replaced the former European Unit for Currency (ECU). The euro was introduced on 1 January 1999, and started to circulate in 2002. The euro coins most commonly used are 1, 2, 5, 10, 20 and 50 cent coins and the euro banknote denominations most frequently used are 5, 10, 20, 50 and 100.

Factors that Affect the AUD

In July 2011, when prices for coal and iron ore boomed, the Australian dollar reached as high as US$1.10. In the years after that, the AUD exchange rate dropped as commodity prices fell. Its decline appeared to have halted in 2016. In addition to a short dip below US70 cents, it traded largely in the range of US70 to US75 cents and broke out again later to above US76 cents. That was a shock for many commentators, who had predicted it to resume its decline.
What, then, drives the value of the Australian dollar?
Commodity Prices and Trade Terms
For the first decade or so after the Australian dollar was floated in 1983, its value closely tracked commodity prices and what are called “trade terms” – the ratio of the cost of the imports of a nation to the price of their exports. Commodity prices essentially decide the terms of exchange for Australia, as commodity prices dominate its exports – products such as steel, iron ore, liquefied natural gas, cement, aluminium ore, beef and wheat. Estimating the dollar’s fair value in those early years after the float was as simple as working out how the cost of imports stacked against the price that the rest of the world was prepared to pay for Australian exports. That tight relationship, however, began to break down in the late 1990s, and has since remained much looser.
Professional Development
The Strategic Finance Leader Suite is a series of executive-level education programmes specifically tailored to meet the challenges and opportunities facing today’s finance leaders. Commodity rates and terms of trade also matter. The Australian Reserve Bank (RBA) is of the view that they tend to play the leading position in deciding the exchange rate, but certain considerations now join the equation. During periods of financial turmoil and economic volatility, investors have traditionally preferred gold and the US currency as safe havens for their money.
The Australian dollar has been added to the list, for now at least. In the wake of the shock Brexit vote in the UK, investors piled up Australian government bonds for 10 years, pushing their yields down to a record low of 1.84%. Since investors need to buy Australian dollars to conclude the deal, the result was to help keep the currency up. Interest rate differentials and official interest levels remain remarkably weak in most developing countries, despite the global financial crisis (GFC).They are also negative in the case of Japan and the Eurozone, meaning creditors have to pay for the privilege of depositing their money with the Japanese government. There is little wonder, then, that Australia is witnessing a strong capital inflow. The RBA’s official cash rate of 1.75% may be a record low for the country, but it stands out from the close-to-zero rates that prevail in most other major developed economies, making Australian bonds attractive.
Good Neighbours
Australia’s close commercial ties with China and other emerging economies in East Asia helped shield it from the worst of the global downturn during the GFC. While the US and Europe collapsed into stagnation, Australia managed to achieve strong growth and remains connected to the fortunes of the international economy’s most vibrant portion. This makes Australia an enticing destination for investors seeking to commit themselves to fairly low-risk development in East Asia.
Credit Rating
One of the things that helped to keep the Australian dollar strong was the AAA credit rating for the region. The three major agencies’ ranking helps to hold down Australian government debt’s lowest interest rates, but that will not last. Standard and Poor’s (S&P) has put a negative watch on Australia’s AAA rating. In its rationale for the decision, S&P stated, “Australia’s negative outlook reflects our view that, with little improvement, material government budget deficits can persist for several years without implementing more forceful fiscal policy decisions, ongoing budget deficits may become incompatible with Australia’s high level of external indebtedness and thus inconsistent with an ‘AAA’ rating.” Total net foreign debt for the economy as a whole reached A$1.02 trillion, and S&P estimates that the nation’s total external financing requirement will reach A$840 billion. If Australia loses its AAA status, budget spending costs will increase, further driving up government deficits, as well as increasing household and company borrowing costs.
Hedging the Risk
Hedging the possibility the Australian dollar is one of the world’s most highly traded currencies and its volatility can be a huge problem for export or import companies. The upturn in the dollar may make imported products or offshore facilities cheaper because it can weaken competition in costs. Similarly, a drop in value may make foreign loans more expensive to service, and may see the cost of imported skills and equipment increase.
Adverse exchange rate movements can affect investment, not only for profit, but also cash flow, balance sheet values, sales revenue and foreign currency income. CPA Australia has developed guidelines to help companies evaluate and manage their foreign exchange risks. The gyrations of the floating dollar in Australia may make things difficult for businesses with access to offshore markets, and some might be hankering for the stability of a set exchange rate. RBA governor Glenn Stevens acknowledges that it can be tough to deal with a floating currency, but insists it has served the nation well overall. “The exchange rate has been the subject of excitement, concern, even shock, on occasion over the past 30 years”, he says. “It acted as an absorber of shock, as intended, but at times it also served as a disciplining constraint, that was perfect for us, in general. On balance, the evidence suggests that the market has, sooner or later, mostly shifted the exchange rate to the right place.”

Factors that Affect the EUR

Trading euro-based currency pairs requires events that can have a significant impact on the euro (also known as the “common currency”), which can be a daunting task for foreign exchange (FX) traders.
The euro is the official currency of 19 of the 27 European Union (EU) member states. These 19 member countries comprise the euro-area, or Eurozone, with a total GDP of 14 trillion (as of 2019).There are hundreds of economic reports from the Eurozone that are relevant to the foreign exchange market each year, but how do you know which economic reports are going to move markets?
The key areas to be focused on are listed below.
Prices and Inflation
Inflation is a key factor affecting all currencies, including the euro. Typically speaking, countries with high rates of inflation compared to other countries, will usually have their currencies depreciate so that the price of commodities is fairly constant between countries. Therefore, higher-than-expected inflation will push the central bank to increase interest rates to contain inflation.
The consumer price index (CPI) is the central indicator of inflation in the Eurozone. This metric measures the price of a basket of goods potentially to be bought by an ordinary family. Usually, traders follow the Core CPI, which is the standard CPI measure that eliminates electricity and food costs. Energy and food prices continue to be unpredictable and can be highly affected by transient imbalances in supply and demand, as well as external natural variables such as temperature, which can skew the CPI value. It is important to note that although the CPI report has an impact on the euro, its effect is diminished due to the release of the CPI Flash Estimate, a CPI estimate, and the German Preliminary CPI about two weeks earlier. Therefore, you might want to keep an eye on various inflation indicators and patterns across multiple regions, particularly German and French CPI reports.
Confidence and Sentiment
Another way to gauge the economic conditions in the Eurozone is to look at reports of confidence and sentiment. The German Zew survey, prepared monthly by the Centre for European Economic Research, is among the most commonly followed sentiment surveys. The survey calls for a panel of up to 350 financial analysts where they see the medium-term outlook of the economy going. Answers are limited to positive, no improvement or pessimistic. This simple response structure enables the Zew indicator clearly to reflect on whether medium-term economics is optimistic or pessimistic for experts and analysts. The survey also asks experts in the Eurozone, Japan, Great Britain and the United States. As for other big indicators, experts are supposed to provide predictions of what the metric would be, as far as the Zew indicator is concerned. If the real Zew indicator is included in the forecasts above, this will turn into a positive result for the euro, while a Zew below forecasts might place pressure on the common currency. A Zew number above zero indicates optimism and pessimism is indicated by a number below zero.
Monetary Policy
Every currency is affected by its respective central bank’s monetary policies. For the euro, that is the European Central Bank (ECB), and the ECB’s interest-rate decisions can have a significant impact. In general, the ECB press conferences continue to be the most relevant news to watch, because interest rate increases are generally expected by the market well in advance. The structure of the press release is a two-part, open press question period with a prepared statement. It is the question period that tends to cause the most volatility in the currency as the ECB president’s answers can move markets. The press conference is key, since it can provide clues as to where the ECB president expects the economy to go. If the ECB president’s language appears “hawkish”, which means they appear worried about inflation, this could lead to future rate hikes, which usually cause the euro to appreciate. Alternatively, if the rhetoric is “dovish”, implying that they think inflation is low, then potential rate rises continue to be less likely and the euro could depreciate.
The Report on GDP or Economic Growth
Eurozone GDP is the next sort of study which has a major impact on the euro. It is one which reports on the total economic performance of the Eurozone. A typical measure of an economy’s economic growth and health is the gross domestic product (GDP), which is a periodic measure of the value of the total of goods and services produced. Overall, GDP growth is a sign of a strong and healthy economy which is positive for the currency. The GDP in the euro area is a quarterly report prepared by Eurostat and released about two months after quarter end. This makes the report rather untimely, as you can tell, and since analysts have several methods to gage the economy’s strength, GDP is usually anticipated in advance. Nonetheless, this report is still significant, and its release tends to move currency markets, especially if there is a surprise about expectations in the actual release.
Balance of Payments
Finally, we’ll take a look at the balance of payments, in particular the balance of trade and the current accounts. The current account is one of the three accounts which make up a country’s balance of payments (the other two are the financial account and capital account).This report measures how a country interacts with other countries with regard to balance of trade, income and other payments. A monthly report is the current account report, usually during the second week of each month. When interpreting this report, a current-account surplus means more capital flows into the country than exits from the country, which is positive for the currency. This occurs in situations where exports exceed imports. A current account deficit means the reverse, as more foreign resources leave the country than come in. That appears to be currency negative. Since Germany and France are two of the largest economies of the Eurozone, several traders will rely on these two nations’ current account data. The bottom line is that hundreds of economic factors could influence the euro. Rather than simply listing reports, a thorough look at those that are most relevant may prove to be more beneficial when trading the euro.


The reasons for this are in part social and in part personal. Decades earlier, it was usually just the GBP/USD exchange rate that was cited, as the USD equals 1 GBP. This is called “cable notation”, in reference to the transatlantic telegraph cable used to relay quotations in the 19th century (thus turning London and New York into one market). Most other currencies are quoted as the sum of foreign currency, equals 1 USD. For their current currency, a few old British colonies that used GBP before independence still use cable notation. For example, the cable includes AUD, Bahamas dollar, Bermuda dollar, Botswana pula, Fijian dollar, Cayman Island dollar, New Zealand dollar, Papua New Guinea, Tongan, etc. Cable was also quoted before EUR, Irish punt and Maltese lira. Just EUR and IMF “private drawing privileges” are cited as cable outside of once GBP customers. Yet the cable is not cited on the Canadian dollar.

The AUD/EUR pair appears to be noteworthy during the trading day for lower variations in its variability. While the three typical peaks of variability followed by higher volumes can be established, these are all far less pronounced compared to the troughs, and far less different from each other. Perhaps the Australian dollar has less of a “home” and is traded around the globe consistently. Although volume is significantly higher around the beginning of the US trading day, it should be borne in mind that some of this is due to the natural flux of liquidity at the beginning of the regular futures trading session. Although the Australian dollar trades with the fifth highest volumes of any currency (partly due to international trading of natural materials, and partly due to carry trading), this apparent absence of any predictably is enhanced.

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