The Australian Dollar is an actively traded currency in forex trading. Including Australia, 8 countries use the Australian Dollar. Australia is the biggest of these 8 countries (Cocos Islands, Heard and McDonalds Islands, Kiribati, Nauru, Norfolk Island, Tuvalu, and Christmas Island); therefore it contributes the most to the value of the Australian Dollar in FX trading.
When considering investing in any foreign currency, it’s wise to be aware of certain economic indicators that can affect the value of that currency in FX trading. The following are several key Australia indicators and indexes to consider when trading the Australian Dollar in a forex trading platform.
Consumer Price Index
The Consumer Price Index (CPI) is widely accepted as the as the best indicator of inflation. It measures the cost to purchase a set bundle of goods and services at the consumer level. Prices are measured for goods and services in industries such as food, housing, clothing, entertainment, transportation, and medical care. The value of the CPI is read at a base level of starting at 100. If the media releases a CPI figure of 106, it means that it now costs 6% more to purchase the same bundle of consumer goods and services.
The Reserve Bank of Australia pays special attention to the CPI, due to the fact that it helps indicate inflation. When the CPI is indicating potential inflation the RBA will usually raise interest rates to combat inflation, thus increasing the value of the Australian Dollar.
Core Consumer Price Index
The Core Consumer Price Index (Core CPI) is similar to the Consumer Price Index (CPI), but the Core CPI excludes the more volatile goods and services. For example oil prices might not be included in the Core CPI. As a result, it is a more stable indicator that the CPI. By not calculating these volatile goods and services, information is less skewed and more thorough. To get a strong market perspective, compare both the CPI and the Core CPI side by side, and compare with past readings.
Producer Price Index
Similar to the CPI, the Producer Price Index (PPI) helps measure inflation. Measures of inflation are crucial in fx trading because when inflation rises, interest rates rise, and the currency value tends to follow suit. Whereas the CPI is used to measure current inflation, the PPI is a prime indicator for future price inflation. Although the PPI measures the price of a bundle of goods and services, it also includes the prices of goods and services still in production (i.e. not yet completed products). The CPI does not include any goods or services that are not at the consumer level. The PPI is expressed in the percentage form of price increase or decrease.
An important factor to consider before making an investment in your forex trading platform is that the PPI does not factor in the price of imported goods, and Australia is a large importer; read Australia’s PPI with a grain of salt.
Wage Price Index
The Wage Price Index is released quarterly by the Australian Bureau of Statistics. The Wage Price Index is comprised of 4 different wage price measurements, but the most important of the 4 measures is the report of total hourly equivalents for rates of pay. This index gives a clear picture of what employers are burdened to pay their staff. Overall the Wage Price Index is meant to gauge levels of inflation in Australia. As a general rule, when wage inflation occurs, general inflation follows. Governing banks (the RBA, or Reserve Bank of Australia in this case) tend to raise interest rates to reduce inflation.