The Australian Dollar

 

The Australian dollar is the currency of the Commonwealth of Australia, including Christmas Island, Cocos Islands and Norfolk Island and the independent Pacific Island states of Kiribati, Nauru and Tuvalu. Within Australia it is almost always abbreviated with the dollar sign ($) with A$ sometimes used to distinguish it from other dollar-denominated currencies. It is subdivided into 100 cents.

The “Aussie”

The AUD ranks within the top 8 most traded currencies in the foreign exchange market. It is popular among currency traders because of the nation’s relative lack of government intervention in the FX market. Additionally, the economy and government are relatively stable and the AUD offers diversification benefits in a portfolio containing the major world currencies for reasons such as greater exposure to Asian economies and the commodities cycle. The currency is commonly referred to by foreign-exchange traders as the “Aussie”.

The Australian dollar was first introduced in 1966 when it replaced the Australian pound and introduced a decimal system to the nation. In December 1983, the Australian government “floated” the Australian dollar, meaning that it no longer managed its value by reference to any foreign currency as it had previously done.

The Australian dollar is popular among currency traders thanks to Australia’s 3 G’s – geology, geography and government policy. Geology has given the company a wealth of natural resources that are in high demand, including oil, gold, diamonds, iron ore, uranium, nickel and coal. Geography has positioned the company as a choice trading partner for many fast-growing Asian economies with nearly insatiable resource demands. Government policy has led to fairly stable high interest rates, a stable government and economy and a lack of intervention in the currency markets.

The Australian dollar is controlled the Reserve Bank of Australia (RBA). While the RBA has not made a habit of very frequent interventions in the currency market, it takes inflation seriously, and Australia frequently has some of the highest interest rates in the developed world.

The Australian dollar is volatile. Australia produces relatively little in the way of manufacturing exports and most of the country’s exports go to the growing economies of Asia. That said, while Australia enjoys a certain degree of independence from the other major world economies, its health is much more closely tied to the price of commodities and the volatility there has created a great deal of volatility in the currency in the past. High interest rates and non-competitive costs make it difficult for Australian businesses to compete. With that in mind, the Australian dollar is likely to continue to trade on the basis of commodity prices, the health of major Asian resource importers and its high interest rates. Nevertheless, it is unlikely that the Australian dollar will fade from importance and continues to be amongst the most traded currencies in the world.

From a binary options perspective, should you decide to trade binary options on the AUD/USD currency pair for example, you can do so with a broker such as Banc de Binary which can offer you the opportunity to profit from your currency trading activities.