AUD & the drivers
One key to understanding the AUD well is not only how the central bank policy impacts the AUD. It is also how other markets impact it. This article will outline some of the major influences that go into the Australian dollar.
Influence #1 China
China is the world's second largest economy. It is also the largest export market for Australia. This means that good news for China is also good news for Australia. The relationship means that sometimes the AUD is traded as a proxy for the Yuan. Expect good china news to lift the AUD as a general rule of thumb.
Influence #2 Iron Ore
Recently AUD prices have been heavily sold as China cut down on its steel mills usage. Iron Ore makes up around 20-25 % of Australia's total exports. Around 80% of these go straight to China. So, you can see how influence 1 and influence 2 are correlated. Strong Iron ore prices is a positive for the AUD and vice versa.
Influence #3 Coal
Again another top export for Australia making up around 12-17% of total exports depending on your source.Recently notice that whereas Iron Ore prices have been falling, coal prices have been rising. See chart below
Influence #4 Gold
Gold mining is big business down under and around 5% of total Australian exports come in through the precious metal.
So, as well as considering the influence of the Reserve Bank of Australia and the USD make sure you include these other influences.
