FXA measures the movement of the Australian dollar against the U.S. greenback. The currency ETF was on a seven-day losing streak before a slight bounce Wednesday morning.
In recent years, the Australian dollar has strengthened significantly “because of strong commodity exports to Asia as well as fiscal and monetary stimulus measures of the U.S. government,” Morningstar analyst Michael Rawson writes in a profile of the currency ETF.
However, FXA has weakened the past few months along with commodities and as China’s economic growth slows.
“Because of its higher interest rates, Australia has traditionally been a target country for the carry trade, in which traders borrow in countries with lower interest rates and invest in countries with higher interest rates such as with the Australian dollar,” Rawson notes. “Despite recent interest-rate cuts, Australia has the highest benchmark borrowing cost among major developed countries. Because of the Australian economy’s heavy reliance on mineral wealth, its currency often rises and falls with commodities.”
CurrencyShares Australian Dollar Trust
