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Australian Dollar Fundamental Bias: Comprehensive Dive into AUD/USD Shifts in a Post-Covid Era

by Onuraag Das   ·  August 16, 2023  


The complex world of foreign exchange often leaves many traders scratching their heads, especially when it comes to the relationship between the Australian Dollar (AUD) and its US counterpart (USD). Central to understanding this pairing is the Australian Dollar Fundamental Bias. In this piece, we will delve deep into the AUD/USD dynamics, particularly focusing on the nuances that have emerged in a post-Covid landscape.

Historical Context

Spanning the period between 2011 and 2023, the AUD/USD relationship has been nothing short of intriguing. These twelve years saw the currency pair navigate a myriad of challenges and transformations. Notably, this wasn’t an era of subtle or minimal shifts. Instead, the Australian Dollar (AUD) and its US counterpart (USD) experienced significant ebbs and flows.

In the pre-Covid times, it would be an oversimplification to say that the AUD’s relationship with the USD was driven by day-to-day news or fleeting events. Rather, the trajectory of the pairing was sculpted by deep-rooted macroeconomic changes, events that shaped not only these two nations but the global economy at large. Factors ranging from global trade dynamics to national economic policies played their part in influencing the direction of AUD/USD.

Central to these influences was the role of the Reserve Bank of Australia (RBA). The RBA’s monetary policy was instrumental in steering the course of the Australian Dollar. Decisions on interest rates, reactions to global economic situations, and policies tailored to the Australian economic landscape—each of these aspects of the RBA’s monetary policy left its mark on the AUD. But this wasn’t a one-dimensional game. The nuances of the US Federal Reserve’s decisions were equally crucial in defining this currency relationship.

Additionally, the Emerging Market sentiment became an essential barometer for the AUD/USD. As many of these markets started gaining a more significant foothold in global economics during this period, their influence on major currency pairs like AUD/USD became hard to ignore. Economic health, political stability, and trade relationships of these emerging economies started casting shadows on the AUD, often amplifying or mitigating the effects of other macroeconomic factors.

Understanding the Australian Dollar Fundamental Bias

Sentiment’s Role in Shaping the AUD/USD Exchange Rate

Australia’s strategic position within the global supply chain cannot be understated. As a nexus in the world business cycle, its economic fortunes are often intertwined with the global economic pulse. Significantly, its economic bonds stretch far and deep into emerging markets, making the AUD uniquely susceptible to the ebbs and flows of these rapidly growing economies.

Source: dailyFX

Emerging Market sentiment, with its volatile nature, becomes a vital factor. This interconnectedness is nowhere more evident than in stock markets, particularly those of Emerging Markets. Fluctuations in these markets often send ripples to the Australian shores, molding the Australian Dollar Fundamental Bias. Such sentiments, both optimistic and wary, play a significant role in dictating the AUD’s strength or vulnerability on the global stage.

Commodity Prices and their Growing Influence

Australia’s economic narrative is inextricably linked with its trade channels, with China standing out as its most prominent trading partner. The vast expanse of commodities that flow from Australian ports to Chinese industries is a testament to this enduring relationship. Such heavy reliance on commodities means that the trajectory of the AUD often mirrors the highs and lows of global commodity prices.

Source: dailyFX

The aftermath of the Covid pandemic brought with it a new chapter for Australia’s trade. The country saw its trade balance swell, a phenomenon spurred by skyrocketing commodity prices and a rebounding global demand. This shift underlined the ever-growing clout of commodities in shaping the AUD/USD dynamic, solidifying their place as a critical driver.

Monetary Policy: RBA vs. Fed

Currency markets have, for the longest time, danced to the tunes of central banks. The AUD/USD pairing is no exception. Historically, the decisions emerging from the corridors of the Reserve Bank of Australia (RBA) have significantly influenced the AUD’s global standing. However, a shift has been in motion since the 2008 financial crisis.

Source: dailyFX

The once-dominant influence of the RBA’s monetary policy has seen a tapering, signaling a metamorphosing Australian Dollar Fundamental Bias. But this story isn’t solely about the RBA. Across the Pacific, the US Federal Reserve (Fed) with its policies, has been an equally pivotal player. Together, the RBA and the Fed orchestrate a complex symphony, one that AUD/USD traders meticulously dissect, eager to discern the market’s next move.

Diving into the Post-Covid Era

Emerging Market Sentiment and AUD/USD

The tremors of the global pandemic were felt far and wide, reshaping economies and realigning financial priorities. In the context of the AUD/USD, the sentiment from emerging markets emerged as a beacon, casting light on the possible directional shifts of the currency pair. In times when most of the world was grappling with unprecedented challenges, major central banks took decisive action.

Source: dailyFX

The RBA, among others, initiated a massive infusion of liquidity into their respective economies to cushion against the pandemic’s blows. This act magnified the role emerging market sentiment played in influencing the Aussie dollar’s dynamics. However, as the dust of the pandemic began to settle, and economies adjusted to the “new normal”, the impact of this sentiment began to taper. While its influence might have seen a decline in the post-Covid landscape, it remains an indispensable factor for understanding the intricacies of the AUD/USD relationship.

The Rising Tide of Commodity Prices

The post-Covid era marked a renaissance of sorts for commodity prices. They became the bellwethers of economic recovery and resilience. For Australia, a country deeply entrenched in the commodity trade, these price shifts became pivotal in shaping the Australian Dollar Fundamental Bias.

An indicator of this seismic shift was the BCOM Index. This index, which tracks a diverse array of commodities, became an essential barometer for traders and policymakers alike. With Australia’s trade balance thriving amidst the pandemic’s chaos, the nation’s export values began to dwarf its imports. This disparity was even more pronounced as global commodity prices saw an upward trajectory. Consequently, the AUD/USD relationship became even more intertwined with indices like the BCOM, underscoring the imperative role commodities play in the post-Covid financial landscape.


The post-Covid world has transformed the Australian Dollar Fundamental Bias. While factors like the RBA’s monetary policy and Emerging Market sentiment still play a role, the AUD/USD relationship’s fabric has seen evolutionary changes. The currency pair has been more influenced by commodity prices in recent times, a trend that might continue or even get magnified if Australian interest rates begin to outstrip those in the US.

In closing, traders and analysts alike must remain agile. They must be willing to adapt and understand that the currency world is one of ever-shifting sands, especially when it comes to a pairing as dynamic as AUD/USD in a post-Covid era.

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  1. What is the Australian Dollar Fundamental Bias? The Australian Dollar Fundamental Bias refers to the underlying factors and economic conditions influencing the value and direction of the Australian Dollar, especially against the US Dollar (AUD/USD).
  2. How did the AUD/USD relationship evolve between 2011 and 2023? The AUD/USD relationship experienced several shifts during this period due to various factors like monetary policy decisions from the RBA, emerging market sentiment, and broader macroeconomic changes.
  3. How does Australia’s position in the global supply chain influence the AUD/USD? Australia’s significant position in the global supply chain makes it sensitive to global economic shifts, especially those in emerging markets. This relationship is often mirrored in stock markets, especially in emerging markets, which significantly influence the Australian Dollar Fundamental Bias.
  4. Why are commodity prices essential for predicting the Australian Dollar’s direction? Australia has an extensive trade relationship with China, exporting large quantities of commodities. Understanding commodity prices, reflected by indices like the BCOM Index, is vital for predicting AUD’s direction, especially in the post-Covid era where commodity prices have gained heightened importance.
  5. How have the RBA and the Fed influenced the AUD/USD exchange rate? Monetary policy from both the RBA and the Fed has traditionally been a driving factor for the AUD/USD exchange rate. However, the impact of RBA’s decisions has been decreasing since the 2008 financial crisis, making the interplay between RBA’s and Fed’s policies even more significant for AUD/USD traders.
  6. How did emerging market sentiment affect the AUD/USD during the Covid era? During the global pandemic, emerging market sentiment became a dominant factor influencing AUD/USD. The sentiment became particularly significant as major central banks, like the RBA, introduced liquidity measures. This sentiment, however, witnessed a relative decline post-Covid but remains important.
  7. Why did the BCOM Index become crucial post-Covid for AUD/USD? Post-Covid, with commodity prices soaring, indices tracking them, like the BCOM Index, became essential barometers reflecting these shifts. The Australian trade balance surged during this period, making such indices pivotal for understanding AUD/USD dynamics.
  8. What role did the RBA’s monetary policy play during the post-Covid era? The RBA, along with other central banks, took actions to infuse liquidity into the economy during the pandemic. While the RBA’s monetary policy has always been a significant factor for AUD/USD, its influence was magnified during and post-Covid due to these liquidity measures.
  9. How have commodity prices influenced Australia’s trade balance post-Covid? Post-Covid, the value of Australia’s exports, particularly commodities, significantly outpaced its imports. As global commodity prices rose, Australia’s trade balance boomed, reinforcing the importance of commodities in the AUD/USD relationship.
  10. What future shifts can be expected for AUD/USD based on the current Australian Dollar Fundamental Bias? While it’s hard to predict exact future movements, the evolving nature of factors like emerging market sentiment, commodity prices, and monetary policies of the RBA and Fed will continue to shape AUD/USD dynamics. Observers speculate potential shifts, especially if Australian interest rates begin to outpace those in the US.