The Australian Dollar
Australia is a major exporter to China, which means that the Australian dollar is linked to changes in that country and across Asia in general. The view of many investors in the forex market is that the AUD is able to offer good diversification benefits when one is attempting to split currency across the world’s economies. This is because the Australian dollar’s inherent link to Asian economies and correlation with the Shanghai Stock Exchange also adds to the correlation the AUD has with gold. Gold is regarded, in the financial world, as a safe haven against the dangers of inflation and is commonly traded.
The Australian currency, along with that of New Zealand, is considered a commodity currency, owing to the two countries’ dependence on mineral and farm exports. This means that the Australian dollar rallies during periods of global expansion and tends to fall when mineral prices drop.
The Reserve Bank of Australia (RBA) has set very high interest rates for an industrialised country and also has a relatively high liquidity. This makes the Australian dollar very beneficial for those looking for a high-yield investment over a short-term, meaning that currency traders commonly use the AUD in order to make the most money. The economy accounts for only 2% of global economic activity, but its currency accounts for around 7% of worldwide forex transactions. The AUD has been free floating since 1983.
