Forex Focus  |  FEB 2009

Trading The Aussie by Markos Katsanos

Trading The Aussie by Markos Katsanos This system exploits the traditionally strong correlation between the Australian dollar and commodities. The Australian dollar, along with the Canadian dollar, the New Zealand dollar, and the South African rand, is regarded as a “commodity currency,” owing to the sizable role of commodity production in the Australian economy. In 2008–09, iron ore is forecast to be Australia’s largest export commodity (in value terms), followed by coal, gold, and crude oil. The country’s largest agricultural export commodity is wheat, ranked 10th overall in commodity export earnings. In addition, Australia is the world’s biggest exporter of metallurgical coal, which is used by steelmakers. Although trading the Australian dollar is not as popular as trading the euro or the yen, it is a fascinating currency because of its strong historical correlation to gold and the whole commodity complex. The direction of commodity prices, interest rate differentials with the US, Japan, and other countries, commodity prices, and the AUD/JPY carry trade† are all key variables moving the Aussie dollar. For the last 10 years, the aussie had a strong correlation coefficient with gold and other commodities (see Figures 1 and 2). In fact, gold correlated better with the aussie (p = 0.88) than with silver (p = 0.84).

by Markos Katsanos