Despite the fact that Australia is a quite large country, its economy is not that big. Australia’s resource-driven economy is heavily dependent on global growth and commodity prices. The central bank of the country is the Reserve Bank of Australia that controls interest rates and issues currency notes. Generally, it has been an extremely conservative entity, it has one of the highest interest rates worldwide, however, does not make any interruptions in the currency market.

Last year the Australian economy reached its lowest level since the early 2000s, because of the COVID-19 pandemic. The pandemic has had an influence over most of the global economic activities, for example, low supplies of natural gas. Australian ten years bond yields improved 7 basis level to 1.72 percent which is their highest record since May.

Exchange rate policy in Australia changed over different governments until the 80s. However, the Australian dollar managed to become more adaptable from around the 70s.

Main factors affecting the Australian dollar

One of the major factors of Australia’s exchange rate in the long term is an index of the inflation rate related to its trading partners. Some theories recommend that the purchasing potential should be balanced between two or more trading countries, which should be guaranteed by the exchange rate between them. If the inflation rate of one country is remarkably higher than another one, its trade-weighted exchange rate will tend to lower to prevent a continuous loss of competitiveness over time. By the end of the 20th century, prices in Australia rose more quickly than prices abroad. In other words, much of what seems to have been a possible profit in competitiveness because of the lower exchange rate was balanced by comparatively weak inflation results in Australia. Another significant factor for the strength of the AUD is commodities and its currency rate is connected to the commodity prices, like metals and grains

Among the different factors affecting the Australian currency rates, there are commodity prices. It means that if the commodity prices are high, recessionary pressures are created. While some factors affect the economy of other well-developed countries in a negative way, they might turn out positive for Australis. So the AUD is a profitable choice for the traders who are planning to go long on commodity exposure.

Australia's currency is also remarkably volatile. The economy of the country is quite different, while most of the main developed economies trade with each other. Australia provides comparatively fewer goods for export and the largest part of it goes to the Asian countries. Accordingly, changes in the Asian economy and currency rates also have an effect on Australia. For example, the rise of China is having an influence on the role of Australia in the region.

Forex market in Australia

The biggest factor influencing the foreign exchange market is changes in interest rates. Considering this fact, the volatility of the Australian dollar has an important impact on the forex market in Australia. It should be noted that the Australian dollar with the US dollar is the fifth-most-exchanged currency on the forex market.

Ultimately, they are some leading AU currency brokers, while the country became one of the leading online trading centers. The market for forex brokers is quickly growing in Australia. Many forex brokers consider it as their largest market. The brokers that are established abroad are capable of making trading transactions in the country by following the forex trading regulations.

Forex brokers in Australia are more and more interested in retail traders worldwide as a result of the convenient trading conditions and the strictly governed financial environment. These brokers have transformed the industry by implementing a new type of trading accounts for the lowest investment funds, which has some benefits for them. Generally, the convenient environment for trading encouraged brokers to lead to Australia.

Conclusion

The Australian currency can be controlled by several economic factors, including adjustments in interest rates, trading balance, gross domestic product and inflation records. Statements by the central bank executives can also have a notable influence on the AUD. Consequently, the price of Australia's currency does not have an association with other currencies and consequently, it is incredibly volatile, which is caused by the facts explained above.