According to new figures released last week, the Australian dollar (AUD) is now stronger than many of its competitors – with an exchange rate that’s outstripped all of its major rivals besides the Norwegian Krone (NOK).
The news is likely to be welcomed by both Australian businesses and global traders, many of whom will be building their forex strategies for the coming days and weeks. The AUD has made significant gains against the British pound sterling, Euro, and the US Dollar, and is now up 2.30%, 2.60%, and a staggering 5.0% respectively.
AUD Is A Commodity Currency
The Australian dollar is known as a commodity currency, meaning it tends to prosper in accordance with commodity prices. Recent gains in the trading prices of oil, coal, copper, and iron ore have boosted commodity currencies all over the world – with the result that the AUD was the highest performing major currency on June 1st.
After a period of uncertainty, the surge in iron ore prices in particular has been identified as a key cause for the AUD’s gain. This price is currently over $100 per tonne, a notable increase from its April price of $83.40.
Australia Has Reduced Unemployment
According to data from the Australian Bureau of Statistics, Australia generated almost 40,000 new jobs in November 2018 – a move which successfully brought the country’s unemployment rate back down to 5.2%. This was one of the lowest rates Australia has seen in over five years.
This increase in employment has helped to bolster the economy, enabling the AUD to gain against its European and American rivals. Only 14,500 new jobs were needed to stabilise the markets, so the additional jobs will prove crucial in helping to insure the economy against future disturbance.
The RBA Remains Optimistic
The Reserve Bank of Australia (RBA) has instilled confidence in the Australian dollar, thanks to its optimistic projections and upbeat bond rate.
At an RBA meeting at the start of June, the bank decided to fix its cash rate and 3-year bond rate at 0.25% – despite the fact that other countries have typically fixed their rates at 0%, or even negative.
Although the future of the global economy is never secure, the RBA’s faith in the strength of the Australian dollar is likely to encourage a similar sense of confidence. As a result, the performance of the AUD on the foreign exchange market is less likely to suffer the hits that both the US dollar and British pound have taken in Q2 of 2020. As Crédit Agricole has projected that the AUD will end the year with a GBP/AUD exchange rate of 2.01, it remains to be seen whether the Australian dollar will go from strength to strength as 2020 progresses.
