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What Influences The Australian Dollar Foreign Exchange Rate

Wed 1st February 2012

Thinking about emigrating to Australia, or perhaps importing and exporting out of the country? Then it might interest you to know the specific things that influence the Australian dollar foreign exchange rate, in addition to the usual factors such as economic and political data.

For instance, unlike Britain which is heavily dependent on financial services for growth, Australia depends on commodities such as coal and iron. These then influence the foreign exchange rate.

Of course, if you’d like to receive personalised guidance regarding changing Australian dollars, feel free to get in touch on +44 (0) 1494 671800 or email enquiries@purefx.co.uk. You’ll be put through to one of our specialist dealers, who’ll be delighted to help.

China and the AUD foreign exchange rate

Perhaps the biggest single thing influencing the strength of the Australian dollar at the moment is China. This is because, as I mention, Australia depends a great deal on mining raw materials to expand and China (no small nation!) is its biggest customer.

For instance, in the last decade Australia has enjoyed an incredible expansion in mining because of Chinese demand, shielding it almost completely from the 2008 financial crisis. (Australia was perhaps the only developed nation not to enter recession, on account of Chinese support.)

This though is a doubled edged sword of course. The Australian dollar has shot up like a rocket because of Chinese custom. But as the Chinese economy begins to cool (as it has shown signs of doing) Australia and its currency risk a hard landing. For instance, the last 3 manufacturing reports from China have indicated contraction, signalling that demand for coal and iron might soon be about to tail off.

In addition, the Chinese influence on Australia has not been wholly positive either. The ensuing rise in the AUD has made exporting Australian products exorbitantly expensive, putting Australian manufacturers under pressure and shocking the domestic economy. If and when the commodities boom slows, this could contribute to a weaker Australian dollar.

Europe and the AUD foreign exchange rate

Second of all, like most of the industrialised world, the Australian dollar foreign exchange rate is influenced by the Eurozone debt crisis. The AUD strengthens up or fades depending on whether reports from Europe are encouraging.

For instance, imagine that tomorrow German Chancellor Angela Merkel decides she has had enough, and decides not just to exit the euro, but declare war on Greece. This would cause panic on the foreign exchange market, which would in turn weaken the Australian dollar, as investors flee to larger and more stable economies such as the US. (Because Australia depends on commodities, its economic growth rises and falls depending on demand, making it less stable.)

Conversely, should Mrs Merkel decide to donate €500bn to Greece, investors would feel comfortable and the AUD strengthen.

Get in touch

Equipped with this knowledge then, you should be in a much better position when you change Australian dollars! In addition, as I mention, to find out more you can visit us at foreign exchange specialists Pure FX. You can also email enquiries@purefx.co.uk or call us on +44 (0) 1494 671800.