The strength of the Australian dollar is not only a product of weaknesses in other major currencies. These are just a few of the main reasons behind the current strength of the Australia dollar. But how is it expected to perform over the coming months? Most forecasts are based on the premise that as long as strong terms of trade continue between Australia and Asia, so too should the strong currency.
There has, however, been some backlash against the strong Australia dollar because there are both winners and losers when it comes to a strong exchange rate.
A strong Australian currency hurts those who rely on the flow of foreign capital to make a living. A high currency can slow the economy down, and dollar-exposed industries such as tourism, manufacturing and education are flagging while the Aussie dollar soars.
High-interest rates and non-competitive costs make it difficult for Australian businesses to compete and the country lacks a strong manufacturing infrastructure.
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. Though the state of Australia's economy should be a concern to Australians, it is unlikely that the Australian dollar will fade from importance even as the Chinese yuan becomes more significant in the region. World Bank.
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Personal Finance. Your Practice. Popular Courses. Table of Contents Expand. Intro to the Australian Dollar. The Economy Behind the Dollar.
Drivers of the Australian Dollar. Unique Factors. The Bottom Line. Key Takeaways While Australia is only the 14th largest country in the world in terms of GDP and 50th largest in terms of population, its dollar is among the top five most frequently traded currencies in the world.
The nation's central bank, the Reserve Bank of Australia RBA is fairly conservative, takes seriously the need to curb inflation, and tends to keep interest rates comparatively high.
Australia's popularity stems from its geology and abundance of natural resources and commodities; its geography—especially in relation to Asia; and its government policy of stable high-interest rates and economy. Australia's currency is counter-cyclical and volatile in nature, as it is closely tied to the price of commodities, which are historically volatile.
Australia is facing more competition from China lately as the Asian nation continues to prove an appealing option for investors in other parts of Asia who want to move assets abroad.
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