Currencies by Country:

AUD and Commodities

The main force behind the propulsion of the Aussi dollar is base commodities. Australia produces gold, aluminum, alumina, bauxite, copper, iron ore, lead zinc, nickel, diamonds, mineral sands, oil, gas, uranium, salt and silver. The natural resources fetching the most profit are coal, liquefied natural gas, gold and iron ore. For the past three years investment has grown in the mining sector by a couple billion dollars. In fact, investment in mining equipment has been the largest component in overall Australian investment. Investment is expected to continue growing from 10 billion in 2005-2006 to 14 billion in 2006-2007. Mining alone contributed 4.5% to Australia’s 2005-2006 GDP. Indeed, resource industries make up an astounding one third of corporate profit in the Australian economy.

Global demand from Australian base commodities has been strong and is increasing. Currently, Australia is responsible for 59% of the worlds seaborne coal trade. It is important to closely watch the Asian economy as Asian countries import 80% of Australia’s exports. As China’s infrastructure expands, its demand for electricity is exceeding its existing coal sources. ABARE estimates that China’s coal imports will increase 12% a year. Australia is a close neighbor and therefore a key trading partner. China’s Liquefied Natural Gas deal with Australia will be worth approximately 25 billion over the project’s lifetime. Japan imports much of Australia’s metallurgical coal and iron ore. Currently, metallurgical coal sells for more than twice the price of soft coal.

Most mining is done is the state of West Australia. The regions ancient granite bedrock fosters poor thin soil for farming but is rich in minerals. West Australia generates 25% of Australia’s revenue with only 10% of the population. The state retains considerable power over the industry. On occasion it has coerced companies to halt exports because they price dropped below acceptable rates.

Australia’s manufacturing sector accounts for 12% of GDP. It has seen layoffs in recent years as the government lifted tariffs of as much as 60% on cars, clothing and other goods. Government aid, diverted from the mining boom has helped the industry adjust.

Farmed goods have also been on the rise throughout the last year. The farming industry is still on the tail end of a recovery from the devastating draught in 2003. Consequently, small growth this year is to be expected. Demand for wool has also increased.

Commodity exporters have benefited greatly from a weak Aussi dollar. However, the increases in demand for base commodities would more than offset any loss in profits from the AUD’s appreciation. The trend has been rising commodity prices strengthening the AUD.

Related Topics