Australian dollar (AUD) Forecasting & Predictions
Australian dollar exchange rate forecasting strategies
Did you know that the Aussie dollar consistently ranks amongst the top five most traded currencies? The popularity of the currency is based in part on the 3 G’s. Geology has made Australia rich with natural resources and premium commodities including iron ore, oil, and gold. Geography has given the country a strategic proximity to Asia, and the stable government generally maintains comparatively high interest rates and beneficial trade policies. Most AUD forecasts focus on the Aussie dollar as it relates to the U.S. dollar (USD) or New Zealand dollar (NZD).
Do keep in mind that we at OFX don’t provide personal advice or specific exchange rate forecasts or predictions; however, below are some general considerations you can use when evaluating forecasts and making your own decisions regarding the best time to transfer your money internationally.
Some key factors in AUD forecasting
Due to its major commodity exports, including grains and metals, Australia is one of three primary commodity currencies (along with the NZD and CAD). When attempting to forecast the movement of the Aussie dollar, particularly as it relates to the US dollar, investors may take into account these country-specific factors:
- Farming. About 12% of Aussie GDP is based around farming and value-adding agricultural processes (such as organic production or milling grain).1 Beef, wheat, wool and cotton are a few of the top ten Australian agricultural exports. Some challenges that may affect the industry include water shortages and the ongoing political debate regarding the export of live animals overseas. Keep these types of factors in mind when reviewing Australian dollar forecasts.
- Mining discoveries, performance and regulations. Oil, gold, iron ore, uranium, nickel and coal are heavily influential on GDP, and the demand for these resources by China and India, in particular, may affect the AUD exchange rate and forecasts.
- Economic growth or decline in Asia. According to Commonwealth Bank, “Some 76% of Australia’s exports are direct to Asia, and AUD is often used as a proxy for Asia.”2 Import/export deals, trade agreements and policies regarding China, India and Japan can play an influential role on Australian dollar currency movements.
- Reserve Bank of Australia (RBA) announcements. When trading currencies, the policies of the local reserve banks are always important. In the case of Australia, the RBA announcements factor even more than usual because the Aussie dollar has been a popular option for carry trades that originate in Japanese yen. (Carry trades capitalise on the interest rate spread between two countries. Japan usually has low interest rates, and the RBA usually supports relatively high interest rates.) Historically, the interest rate spread between the two currencies has been up to 4%. When reviewing Australian dollar forecasts, how such RBA announcements affect the interest rate spread is another factor to consider.
Like many commodity currencies, the Australian dollar can be highly volatile. That’s why it’s popular with traders and why it’s important to consider hedging risks when evaluating AUD/USD forecasts.
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For a more general discussion about exchange rate forecasting and macroeconomic factors to consider, read our article: Exchange rate forecasting: Strategies for success.
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