AUD/USD

Currencies // Developed Markets

• Background

  This currency pair pits the commodity-driven darling of the carry trade, the Australian dollar, against the global reserve currency, the US dollar. The Australian dollar has always been considered a useful play on commodity prices due to the Australian economy’s heavy reliance on the export of its mineral resources. The US dollar is also used as the standard unit of currency in international markets for commodities such as gold, petroleum and agricultural products. One of the youngest currencies currently traded, the Australian dollar replaced the Australian pound in 1966 and was pegged to the US dollar under Bretton Woods until 1971. The Australian dollar then adopted a floating peg against a basket of currencies in 1976, until in December 1983 it was allowed to float freely. Australia’s is primarily an export-driven economy and relies heavily on markets in Japan, China, the US, South Korea and New Zealand. From being the bread basket of Asia in the late part of the 20th century, Australia has grown and diversified to be one of the world’s largest exporters of coal, zinc and tin ores and concentrates, iron ore, beef, barley and raw sugar. With Australian interest rates generally high relative to global interest rates over the past 20 years, the country has also attracted a lot of hot money in the form of carry trades.

• Influencing Factors

  Factors affecting the Australian dollar are economic indicators including the level of interest rates, trade balance, unemployment, price inflation, and GDP. Other factors are the price of commodities like gold, copper, nickel and oil. Factors affecting the US dollar are GDP growth, inflation, interest rates, unemployment and current account deficit.