Everyday the news is full of conflicting messages about why the Australian Dollar (AUD) is headed up or headed down. This table shows the real drivers behind the fall of the Australian dollar over the last year.
What Really Makes the Australian Dollar Fall
Our study shows that, clearly, that there are only a handful of root causes behind the Australian dollar falling more than 1% in any one day. Of all of these reasons, China is by far the most influential factor.
The Rise of China and the Fall of the Aussie
China was a significant factor in 40% of the occasions the Australian dollar fell more than 1% in the last year. In 2016, most of the focus was on the stock market, but throughout the last year, any negative (or worse than expected) economic data has been followed by a big drop in the Australian dollar.
US Jobs and Interest Rates
The AUD/USD exchange rate is not just impacted by events close to Australia, but also the relative strength of the US Dollar (USD). Our study found that particularly strong jobs data out of the U.S caused the Australian dollar to fall as the US dollar appreciated. The other catayst for a stronger greenback and a weaker Australian dollar came from U.S. interest rate expectations. On more than one occasion, signals that interest rates may increase sooner than the market’s expectations, led to a dip in the AUD/USD
Lower Commodity Prices
Commodity prices and the Australian dollar have always had a close relationship, so it may come as little surprise that, as commodity prices fell, so did our local currency. In particular, the quick and sometimes volatile drop in the price of oil became a bad omen for the exchange rate.
Where the data came from
The reasons behind the Australian dollar drops change, from year-to-year and sometimes, month-to-month. Taking this into account, the study limited the findings to the last 12 months of data.
Our study looked at every occasion the AUD/USD dropped more than 1% in 24 hours, using the RBA benchmark rate each day. Each event was categorised and defined each drop based on a range of sources, such as reporting by The Australian, News.com.au, the Sydney Morning Herald, the ABC and Herald Sun.
Keep informed, cut out the noise and take advantage
The Australian dollar can be very volatile. The above table shows 25 different occasions within a year when it dropped more than 1% in less than 24 hours. It might seem that the exchange rate is thrown about by many different forces, but, in reality, it comes down to just three or four factors. At the moment, those factors are China, the U.S. economy (and interest rates) and commodity prices.
Knowing the key influences can help you manage any currency exposure you have. If you have to buy or sell currency, you may be drawn into reading the business news every day and checking the exchange rate on xe.com. There is nothing wrong with this, but if you don’t have time, we suggest 2 things:
- Get your news by email once a week to know what economic news is coming up.
- Set a rate alert to take advantage of any exchange rate movement in your favour.