Why is AUD/USD so volatile this year?

The Australian dollar with the US dollar is one of the most traded currency pairs globally and is the fifth-most-traded currency on the forex market. The factors for its demand are the typically high interest rates, the country’s wealth of natural resources, and its status as the best trading partner. To know how many USD you need to buy one AUD, you should check the live price chart.

Despite the fact that Australia is a quite big island, its economy is not that large. By gross domestic product, it was ranked as 14th in the world a few years ago. The central bank of the country is the Reserve Bank of Australia that controls interest rates and issues currency notes. Generally, it has been an extremely conservative entity, it has one of the highest interest rates worldwide, however, does not make any interruptions in the currency market.

In March 2020 Australia reached its lowest level since the early 2000s because of the COVID-19 pandemic. Since then the Australian dollar has acknowledged the prospects for global recovery have grown and goods prices have risen, still, it stays below its 2013 top result. The proportion between export to import prices of Australia has also decreased from its peak.

The AUD over a long period of time is determined by the terms of trade and interest rates, which give information about the foreseen need for the currency. Another factor affecting the currency is the influence of global financial markets, for example, changes in market members’ attitudes towards risks.

The interest rates and monetary policy have a big influence over the AUD. For example, when the interest rate between Australia and other countries with a strong economy is significantly different.

A number of surveys have investigated the impact of quantitative easing actions on financial markets. According to this, the effect of quantitative mitigations is similar to the effect of mitigation in traditional fiscal policy, where interest rates are lowered and which causes a reduction in the exchange rate. The increased pressure on the AUD exchange rate was affected by the 2020 crisis following high longer-term interest rates. Over the same period, asset prices were little altered, however other financial market improvements may have also influenced the devaluation of the exchange rate. Although, a bigger share of the devaluation could also be connected to the drop in interest rates. Accordingly, while there is risk about estimations of the effect, by reducing the interest rates, the actions of the Australian central bank have reached a remarkably lower exchange rate.

Among the different factors affecting the Australian dollar are Macroeconomic data releases, commodity prices and trade relations. The Australian economy is dependent on Macroeconomic data releases which might change the rates as traders and investors adjust their views according to the data. Forex trading is also affected by these circumstances, for example, these Australian Forex brokers, which you can find in the list, also need to adapt to the currency rate changes. Another significant factor for the strength of the AUD is commodities and its currency rate is connected to the commodity prices, like metals and grains. As for Australia, the higher commodity prices are beneficial for its economy, while for other countries with developed economies, it has negative effects. Due to geographical location, most of the Australian products are exported to Asian countries, meaning that AUD is also affected by the order for natural resources from Asia.

The financial experts say that risk proxy in G10 is normal for AUD, but it is abnormal for currency pairs, where it is showing a notable correlation to equities. In recent states, the Australian dollar had dropped to 71.3 US cents, which was a 1.3% fall. The AUD fell to its lowest level since November. It has also declined by 7% since the start of the year. The risk is estimated to be dropped to below 70 US cents.

The Australian dollar has reached the 200 weekly EMA over the week but has revealed symptoms of uncertainty around the 0.73 level. As the markets are raising attention to stagnation risks, the US dollar is expected to underperform across the board. The price of Australia's currency does not have an association with other currencies and consequently, it is incredibly volatile, which is caused by the facts explained above.