[News Terms] Rising Together with Copper Prices? Risk Asset 'Australian Dollar'

In the financial investment market, money (currency) is generally considered a safe asset. However, this applies only to key currencies such as the US dollar or Japanese yen, which are the basis for international settlements and financial transactions. If it is not a key currency, even the currencies of major countries traded in international trade can be classified as risky assets that may lose value when market conditions are unstable.

Photo by Australia Ready Bank.

A representative risky asset currency is the Australian dollar. As the official currency of Australia, it is globally trusted enough to be used as a foreign exchange reserve asset, but since Australia has a close correlation with the commodity market, its currency tends to be classified as a risky asset. Australia is a major exporter of commodities such as iron ore, coal, and natural gas. These commodity prices are determined by supply and demand in the international market. If commodity prices fall, Australia's exports decrease, which leads to a decline in the value of the Australian dollar. Conversely, if commodity prices rise, the Australian dollar's value tends to strengthen.

This relationship can be easily understood by comparing recent copper price trends with the value of the Australian dollar. The London Metal Exchange's copper spot price closed at $8,528.52 on the 1st, marking the highest level since August. Copper prices have been rising for three consecutive weeks due to concerns over supply disruptions caused by issues such as the closure crisis of the Panama copper mine. The Australian dollar's value trend is similar. According to the foreign exchange market, the AUD/USD exchange rate was 0.6581 dollars as of 3:13 PM on the 5th, continuing an upward trend since 0.6361 dollars on the 11th of last month.

Another factor classifying the Australian dollar as a risky asset is its relationship with the Chinese economy. China is Australia's largest export destination, accounting for about 40% of Australian exports, and the largest import source, accounting for about 20% of Australian imports. Since China's economic situation inevitably has a significant impact on the Australian economy, if China's economy slows down or political and diplomatic conflicts arise between China and Australia, Australia's trade balance deteriorates, which in turn leads to a decline in the value of the Australian dollar. The 6.92% depreciation against the dollar up to the end of October this year is also analyzed to have been partly influenced by concerns over the slowdown in the Chinese economy.

Meanwhile, the predecessor of the Australian dollar was the Australian pound, which was replaced on February 14, 1966, with the introduction of the decimal system. The exchange rate at that time was 2 Australian dollars per 1 pound.

The Australian dollar is also used as legal tender in countries other than Australia, with representative countries being Pacific nations such as Kiribati, Nauru, Tuvalu, and Fiji. Papua New Guinea, the Solomon Islands, and Vanuatu also operate exchange rate systems that allow the Australian dollar to be exchanged with their own currencies.