Economics of the AUD

The Australian Dollar's Presence Globally

The Australian economy has gathered strength globally in recent decades, particularly since the late 1960s when the Australian Dollar became the official currency of the Commonwealth of Australia. The Aussie Dollar, as it is commonly referred to, is popular among forex traders largely because of the fact that the Australian Government tends to intervene in the forex market substantially less often than do other governments. Various economic and political factors combine to drive the ever-changing value of the AUD, but key to traders are the many economic indicators pertinent to the Australian economy.

Some of the relevant economic indicators to the AUD are released directly through the Reserve Bank of Australia (RBA - Australia’s governing bank), while others may be released from private data analysis firms. Each of the economic indicators listed and described below have the potential to affect the price and stability of the AUD upon their release. There are other indicators that are directly relevant to the AUD, but that have been excluded because their impact on the price of the AUD is generally very insignificant.

The economic indicators outlined below can potentially move the price of any currency pair the AUD is involved with. These currency pairs include:

AUD/USD ~ AUD/JPY ~ AUD/CAD ~ EUR/AUD ~ AUD/NZD

Some of the below reports are commonly released by most economic powers around the globe, others are specific only to Australia. The reports are listed in alphabetical order, for more on the report and its strength ranking take a look at each individual indicator description below. For the date and time of the next release for each report please browse our current economic calendar.

Reports Listed in Alphabetical Order

(+) Construction Work Done q/q
This indicator is a simple measurement of quarterly changes seen in the number of completed engineering and construction projects. The numbers for this indicator are taken from Building Activity Survey, which is also measured quarterly.

(+) CPI q/q
CPI stands for Consumer Price Index, a fundamental indicator that establishes the rate of price inflation or price increase as seen by consumers when purchasing goods and services. The Consumer Price Index is touted as a timely and detailed inflation indicator. Typically, it is assumed that a rising trend in CPI will positively impact a nation’s currency. Central banks are most concerned with price stability. If inflation rates are continually rising interest rates will likely be increased in an effort to bring prices back down. Globally, increased interest rates are said to entice foreign investment flows, which would of course, in turn, increase the demand and the standing of a nation’s currency on a global scale. CPI is a well respected fundamental indicator and is ranked highly in terms of its potential impact in the market.
Australia reports their Consumer Price Index figures on a quarterly basis, as opposed to most other countries who report on a monthly basis. Because these numbers are released less often the potential impact on the Aussie is substantial.

(+) Employment Change
The Employment Change indicator is a measurement of new jobs created within the Australian economy throughout the previous month. Consumer spending is closely linked to the creation of new jobs, as those who are employed tend to spend more (and put more back into the economy) than those who are unemployed. Employment levels and the creation of new jobs will largely impact the strength of an economy, thus a rising trend seen in this indicator should positively impact a nation’s currency. Because this report is released early in the month it tends command the attention of traders.

(+) Interest Rate Statement
On the first Tuesday of every month the Reserve Bank of Australia (RBA) publishes an interest rate statement. Perhaps at the core of all economic indicators are those that relate to interest rate decisions. In fact, most would argue that other economic indicators are used by the average trader as nothing more than a means to anticipate pending interest rate changes. The bulk of the statement includes an explanation of the various economic factors that influenced the change in rates (or lack thereof) for the nation’s short term interest rate, also referred to as the “cash rate”. The report will also include insight as to what the next interest rate decision might be. Short term interest rates are of monumental importance to traders in any of the major financial markets. This is due to the fact that high interest rates attract foreign investors who are seeking the highest possible return in exchange for the lowest possible risk. Central banks are most concerned with price stability. If inflation rates are continually rising interest rates will likely be increased in an effort to bring prices back down. Globally, increased interest rates are said to entice foreign investment flows, which would of course, in turn, increase the demand and the standing of a nation’s currency on a global scale. Seasoned economists understand the relationship between inflation and interest rates, namely that inflation tends to precede higher interest rates, which ultimately increases the global demand for a nation’s currency.

(+) PPI q/q
PPI stands for Producer Price Index, a fundamental indicator that establishes the rate of inflation, or in other words, the rate of price changes as seen by manufacturers who must purchase goods and services. The Producer Price Index is touted as a timely and detailed inflation indicator. Typically, it is assumed that a rising trend in PPI will positively impact a nation’s currency. Logically enough, when manufacturers are forced to pay higher prices for the goods and services they need, these higher prices are then soon seen by the consumer. As such, the PPI is considered an indication of consumer inflation. The potential impact of PPI in the market is well respected by traders, though it is generally not thought to have as large of an impact as does its closely related cousin; Consumer Price Index (CPI), which is usually released shortly after PPI.

(+) Trade Balance
Trade balance compares the amount of imported goods and services to the amount of exported goods and services of a given economy. Economically, it is in the best interest of an economy to have more goods and services exported than have been imported. Thus, a positive trade balance measures a period in which more goods and services were exported than were imported. An increased number of exports translate to an increase in the demand for said nation’s currency, as other countries will be forced to exchange currency in order to purchase the exports. GDP (Gross Domestic Product) is also largely impacted by the trade balance, as an increase in the demand for exports will increase the work load of domestic factories, thus increasing employment levels.

(+) Retail Sales m/m
Retail Sales is a measurement of the total value of retail sales in a given period. Because a large portion of consumer spending is accounted for in this indicator and because this indicator is typically the first of the month to report numbers concerned with consumer spending, traders tend watch this indicator closely. Retail Sales gives traders a good look at the consumer spending situation, which of course, will account for approximately half of GDP (Gross Domestic Product). In other words, traders watch Retail Sales because of its lead into consumer spending, which in turn, is important because of its lead into GDP. Rising trends seen within this indicator should positively affect the standing of a nation’s currency.

(+) Unemployment Rate
The Unemployment Rate, as one might presume, measures the total number of citizens that are unemployed and who are presently seeking employment. Because consumer spending is such a large part of economic health, and those who are employed tend to spend more than those who are not, a downtrend seen in this indicator will have a positive effect on a nation’s overall economic strength. The Unemployment Report is considered by traders a lagging indicator, meaning that its insight offers little in the way of future projections. As such, this is indicator is not as heavily regarded as perhaps its name would suggest.