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The value of the Australian Dollar (AUD) is influenced by a range of economic, political, and market factors, both domestic and global. As a commodity-linked currency, the AUD is particularly sensitive to fluctuations in commodity prices, especially iron ore, coal, and gold, which are among Australia’s primary exports. Rising commodity prices generally strengthen the AUD, while declining prices tend to weaken it.

Monetary policy set by the Reserve Bank of Australia (RBA) also plays a crucial role. Higher interest rates attract foreign investment, increasing demand for the AUD and leading to appreciation, while lower rates can result in depreciation. Inflation, employment levels, and GDP growth further reflect the strength of the Australian economy, influencing the currency’s performance.

Global risk sentiment significantly affects the AUD, as it is considered a “risk-on” currency. During times of economic optimism, investors often seek higher-yielding assets like the AUD. Conversely, during periods of uncertainty or market turmoil, investors shift to safer currencies like the US dollar, causing the AUD to weaken.

Additionally, Australia’s trade relations, particularly with China—its largest trading partner—impact the AUD. Strong trade activity with China supports the currency, while trade tensions or economic slowdowns in China can exert downward pressure on the AUD.