I. Understanding the Foreign Exchange Market The foreign exchange market refers to the trading network composed of various banks and financial institutions engaged in foreign exchange trading.
The main features of the foreign exchange market are as follows: (1) The invisible market. Participants in the foreign exchange market conduct transactions through telephone, telegraph, Internet and other means of communication, regardless of location;
2 trillion dollars are traded every day.
Because of this, there are no dealers in the foreign exchange market, and traditional price and volume coordination is out of the question in technical analysis.
The major financial centers of the world, such as New York, London, Tokyo, Hong Kong and Sydney, cover all time zones in the world, so the foreign exchange market operates 24 hours a day from Monday to Friday.
The main participants in the foreign exchange market include: central banks, foreign exchange banks, foreign exchange brokers, speculators, etc.
The main characteristics of commodity money are: high interest rates, a high proportion of exports in the gross national product, major producers and exporters of an important primary product, currency exchange rates moving in the same direction as a commodity (or the price of gold), and so on.
Australia and New Zealand are rich in coal, iron ore, copper, aluminum, wool and other industrial products and cotton products. Australia occupies an absolute advantage in the international trade of these products and occupies a dominant position, while the prices of these products in the international market are basically priced in US dollars. Therefore, the rise in the prices of these commodities is not only conducive to the economic growth of the region,
Also conducive to the domestic currency exchange rate rise.
In 2005, gold, oil and agricultural prices soared and the international Commodity Futures Index (CRB) rose to a five-year high, driving up the Australian and New Zealand dollars.
Statistics and figures show that there is a strong positive correlation between world commodity prices and the trend of the exchange rate of Australian dollar and New Zealand dollar.
As can be seen from the graph, although Australia and New Zealand are not important gold producers and exporters, the currency exchange rates of these two countries are significantly positively correlated with the gold price.
The higher CRB has a positive impact on the Aussie and New Zealand dollars.
Therefore, these two currencies are often called “commodity money”.
Canada is also an important exporter in the world, but it is difficult to see Canada’s advantages in the main components of the international commodity futures price index. Meanwhile, the Canadian dollar is not obvious as a commodity currency due to its low interest rate.
However, the Canadian dollar is still conventionally referred to as a commodity currency.
In addition to these three common currencies, the South African rand and the Norwegian krone are also commonly referred to as commodity currencies.
Graphic: The Relationship between the Exchange rate of the Australian Dollar and the Price of Gold (July 2006 – March 2007) III. The Australian Dollar and the Australian Economy Analysis of Australia’s export trade situation.
Australia is a largely export-oriented country, with exports now accounting for about 25 percent of Australia’s gross domestic product, up from about 15 percent in the mid-1980s.
As a supplier of advanced products and services, Australia is developing new economic growth areas.
Exports of refined, high-value products grew at an average annual rate of 14% in the 1990s, far faster than those of Japan and Germany.
Exports of mechanical equipment, electronic components and assembled vehicles have also increased significantly over the past decade.
Australia is also competitive in high-technology products such as scientific and medical equipment, telecommunications equipment, computer software and aerospace products, and now has a new edge.
“All of Australia’s commodities have been hit by the appreciation of the Australian dollar, and combined with the drought, this will have a significant impact on Australian commodity export earnings.”
Senior government officials say Australian agriculture has been hit hard by the strong Australian dollar and drought in New Zealand and Queensland.
Over the past year or so, agricultural exports have lost more than A $2bn.
But in reality the cost to Australia as a whole is negligible.
In 2002, agricultural exports accounted for only about 6% of Australia’s total exports.
At the same time, there has been a steady increase in the degree of processing of Australian exports, reflecting the increasingly refined mix of Australian exports and the increased value added of raw materials.
Exports of unprocessed food, fuel, minerals and other primary goods fell from 46% in the early 1990s to 30% in 2002.
In the above figures, it should be noted that in recent years, the proportion of Australia’s primary product exports in the overall trade is getting smaller and smaller, while in the same period, the advantages of service trade, immigration and high value-added manufacturing industry are becoming more and more obvious in the international market.
Due to the influence of terrorist attacks and unilateral political and economic hegemony, tourism and immigration in the United States have been unprecedentedly restricted, while Australia is on the contrary. Taking China as an example, the number of Chinese people going to Australia for study, immigration and tourism has skyrocketed in the past two years. In the constant change of these factors,
The Australian dollar has maintained a long-term upward trend against the US dollar.
Iv. The Canadian dollar and the situation in Canada.
The structure of Canada’s export commodities has changed a lot in the past decade. Since 1976, the export of communications, transportation equipment, chemicals and petroleum products has increased a lot. The proportion of the above products in Canada’s total product exports has increased from 30% in 1976 to 45%, with an annual growth rate of 15%.
Wood and paper products (pulp, newsprint) were the second largest export category, with an annual growth rate of 10.4% and annual exports of more than US $18 billion.
Food, beverages and tobacco have become the third largest export category, with annual exports exceeding $9.5 billion.
In addition, wheat, meat, seafood, oil, natural gas, aluminum, nickel, lead, gold and other non-ferrous metals are also important exports of Canada.
It should be noted that the proportion of gold in Canada’s total export is also very small, only accounting for about 1 percentage point. Therefore, it can be found that there is almost no correlation between the exchange rate of Canadian dollar and the price of gold.
As a share of GDP, Canada’s exports are four times that of the United States and twice that of Japan.
Therefore, although Japan is generally regarded as an export-oriented country, in fact, Canada is the most export-dependent country among the top seven western countries.
We can find that due to the lack of price elasticity in the demand of some primary commodities, that is to say, these commodities may be some People’s Daily necessities, such as seafood and agricultural products. Therefore, if the price rises, such as the appreciation of the Canadian dollar, it may not have a significant impact on the export volume of these products.
On the other hand, if the price of some irreplaceable commodities rises, it will put upward pressure on the Canadian dollar.
Through the above analysis, in a sense, the influence of commodity price changes on the exchange rate trend of these so-called “commodity currencies” still exists, but the effect is getting smaller and smaller, because the status and share of these commodities in the whole international trade or the foreign trade of these countries are getting smaller and smaller.
After the study, it is found that although the exchange rate of Australian dollar has a certain correlation with gold, it is often distorted. What’s more, the exchange rate of Australian dollar and gold price not only has no correlation, but also shows the opposite direction of change.
For Australia, gold is not a major export, accounting for less than a percentage point of total exports, let alone the world’s leading gold exporter, South Africa.
So whether the relationship between the Australian dollar and the gold price can be simply determined remains open to debate and further research. Personally, the relationship is largely uncertain and contingent.
