In some respects, the Australian dollar (AUD) may not seem like a candidate to be one of the most popular pairing currencies for forex traders. After all, Australia is hardly one of the world’s largest countries in terms of GDP, whilst it only ranks 19th in terms of the value of its exports.
However, the AUD is currently ranked as the fifth most traded currencies in the world, whilst the AUD/USD is considered to be the fourth most popular pairing in the whole of the forex market (we’ll touch further on this later).
In this post, we’ll explore the economy behind the AUD, whilst asking why it’s so popular amongst forex traders.
The Economy Behind the AUD
In some quarters, the enduring popularity of the AUD is attributed to the so-called “3 G’s” that underpin the Australian economy.
These refer to geology, geography and government policy, each of which have contributed to a strong economy that has managed to avoid a technical recession for more than 30 years.
Geology is arguably the most important factor, as this relates to the nation’s wealth of natural resources including iron ore, diamonds, gold and oil. This selection has helped to establish Australia’s relationship as a commodity-driven economy, whilst creating a foundation for lucrative trading relationships with China and the Asia-Pacific region.
The latter point also ties into geography, as Australia’s location has positioned the nation as a convenient trade partner for a number of Asian economies and other developing countries such as India.
The importance of government policy should also not be overlooked, not least because this has enabled Australia to realise the full potential of its resources. The country’s economic policies have also created relatively stable rates of interest and inflation, whilst the government is renowned for not meddling in the forex market or over regulating this space.
Of course, there are some issues here, including the unpredictability of the commodity cycle (which is usually caused by fluctuating levels of supply and demand) and a recent bubble in the housing market. It looks like the property sector has stabilised in recent times, however, and the Australian economy seems to be enjoying a period of relative growth.
How is the AUD Currently Performing?
If you’ve been tracking the AUD on Oanda over the course of the last few months, you’ll know that it has performed steadily and continued to crawl higher against the USD.
This trend came to a head at the end of last week, thanks largely to the release of softer U.S. economic data and renewed hopes of a trade deal being struck between North America and Australia’s strategic trade partners China.
With Australia also boasting a more stable housing market and strong economic performance, experts believe that the AUD/USD is unlikely to slide into fresh lows without a specific and traumatic catalyst.
With this in mind, this currency pairing arguably remains the most viable option for traders who are interested in the AUD.
The AUD/JPY pairing is another one that offers appeal to traders, with the safe haven nature of the Japanese yen helping to balance Australia’s occasionally volatile commodity-driven economy. Just be sure to make a decision that suits your own unique outlook, and more specifically your appetite for risk.