What Would Change Trends in the Australian Dollar?

Over the last few years, the Australian Dollar has given up much of its prominence against some of its most commonly traded counterparts.  Before this period, the AUD was one of the most prized currencies in the market, and it rose well above parity versus the USD in a relatively short period of time.  At this stage, those times are in the rear view mirror but if we start to see some policy changes at the central bank level the tide would still turn in the Australian Dollar.

RBA Policy

One scenario that would trade this type of environment would be if the Reserve Bank of Australia (RBA) showed concern for potential consumer inflation and signal increases in interest rates.  Higher interest rates increases the yield level for holding onto a currency for an extended period of time.  This is directly related to the amount of interest that currency holders receive when money is held in a savings deposit account.  So this does not necessarily mean that you will need to be actively trading in the currency markets in order to profit from increases in the Australian Dollar.

If we do start to see some changes in the policy stance, the Australian Dollar would once again approach parity relative to its US counterpart.  Those looking to trade to trade and profit from these markets can look at the forex environment for ways of expressing these views.  This can be difficult for traders that have less experience in these markets, but there are brokers like Mocaz that offer social trading outlets that can be helpful in these areas.

In any case, investors should continue to monitor activity in the AUD, as there would be some significant changes here in the months ahead.   If we start to see the RBA signal the need for higher interest rates, the market will likely start buying the currency in anticipation of a run higher later.  So this is something that should be on the radar of all investors because this is also an event that will impact a wider variety of asset classes (to include stocks and commodities, as well).  If you are already invested in any of these asset classes, changes in interest rates will be vital going forward.