AUD/USD in the forex market

Instrument description

The Forex market is dominated by the Major currency pairs that are traded heavily and the list consists of EUR/USD, USD/JPY, GBP/USD, USD/CHF pairings, but many think that AUD/USD, USD/CAD, and NZD/USD known as the ‘commodity pairs’ should also be included in the ‘Major’ list of currency pairs. However, the combined seven currencies amount up to 85% of the total Forex transactions in a day.

The AUD/USD pair is one of the three popular commodity pairings which denotes Australian Dollar (AUD) and U.S Dollar (USD). The Australian Dollar makes a commodity pair as the economy of Australia is heavily based on the import and export of commodities. Forex traders use commodity pairs to gain maximum exposure to the commodity market, for example, take trying to advantage of the volatility in the oil prices.

The AUD/USD exchange rate shows AUD as the base currency, and USD is the counter or quote currency. The exchange rate shows how much one currency is needed to buy one unit of another currency. For example, if the current AUD/USD value is 0.69, it means that 1 AUD equals 0.69 USD, or in other words, a trader would need 0.69 USD to buy 1 AUD. The AUD/USD pair is popularly known as ‘Aussie’ among the traders, and they would often use the word ‘Aussie’ when buying or selling the AUD/USD pair.

History of AUD/USD Currency Pair

The Australian Dollar replaced the Australian pound in 1966 and recently marked its 50th anniversary in 2016. The Australian Dollar is not only the official currency of Australia but also of many neighboring countries, which includes Papua New Guinea, Norfolk Island, and Cocos Islands. AUD became a free-floating currency in 1983 and became popular due to three G’s of Australia that are geography, geology, and government policy. Australia is ranked among the top countries of the world when it comes to natural reserves, which includes metals, iron, coal, and diamonds.

The trade relations of Australia with China is one that appreciates the value of AUD consistently due to a large trade surplus. The AUD/USD pair is the fifth most commonly traded currency pair, and the all-time low for the pair came on March 1, 2001, when due to the slow Australian economy, the rate was recorded at 0.4855. The all-time high for the AUD/USD pair came on April 1, 2011, when the rate touched 1.096.

Apart from China, Australia has a long term relationship and alliance with America, and it is evident with the Australian-United States Free Trade Agreement (AUSFTA) in 2005 that has led to over $1 Billion worth of investment in Australia from U.S. The AUD/USD tends to have a negative correlation with other currency pairs that include USD/JPY, USD/CAD, and USD/CHF, and the reason is that USD as the base currency. Similarly, AUD/USD has a positive correlation with EUR/USD, and GBP/USD, as USD is the quote currency.

How to Trade AUD/USD Pair

The AUD/USD pair contributes to 7% of the entire Forex market in volume. The traders can try to take advantage of the volatility, liquidity, and frequent price fluctuations due to interest rate difference between the two currencies. The AUD/USD pair can be traded 24/7, but the prime time is when the market is most volatile, the AUD/USD market is full of activity from 19:00 to 4:30 GMT.

The relevance of the AUD/USD pair has increased in recent years, and it is because of the boom that the Australian economy got due to commodities transaction after 2000. The USA is already a leading economy, and Australia is also expanding its economy. You can make the AUD/USD transaction among other options either through a contract or by using Contract for Difference (CFD).

CFDs are a popular financial instrument where one party agrees to pay another party on the difference in price from the start to the end of a trade. You speculate on the price difference of the underlying asset, and you have to option to use leverage and either go long or go short for trying yo earn a profit. If you think that AUD will rise against the USD, then you Buy or go long, and similarly, if you think that AUD would lose value compared to USD, then you would Sell or go short. CFDs allows you to trade using leverage and maximize your profits but also losses, so you need to try to manage your risk.

How to read the Price Change in AUD/USD Pair

The ticker for Australian Dollar in exchange with the U.S Dollar is denoted by AUD/USD on the Forex market. Traders mostly use daily price charts, historical exchange rates, and moving averages to speculate the price movement along with keeping a close eye on the developing financial and political news. The price action and market sentiment can quickly change with critical news and changing political scenarios.

According to the historical price range, the AUD/USD pair saw a considerable low March 19, 2020, when it reached a value of 0.5744. But in recent months, there have been plenty of swings, the market reached a high of 0.7210 on June 8, 2020, and currently, AUD/USD pair stands on 0.6928. The Bid price or willingness of traders to buy AUD is 0.6928, while the Asked price or traders willing to sell AUD IS 0.630.

What causes price change in the AUD/USD pair?

The AUD/USD pair is influenced by all the macroeconomic factors that shape the overall value of the individual currencies such as AUD in Australia and USD in the United States of America. Being a commodity pair, the AUD/USD is impacted considerably by fluctuating commodity prices, inflation, current trade balance, GDP, political events, interest rates, and relationships with other developed countries such as China.

The monetary policies imposed by the central banks of Australia and the USA also directly impact the current and future price movement of AUD/USD pair. The Reserve Bank of Australia (RBA) usually determines the interest rates. At the same time, it is the U.S Federal Reserve, also known as Fed in America, which controls interest rates, inflation, and unemployment rate.

The rate of AUD/USD pair is also affected by the prices of gold, as both the U.S and Australia are second and third when it comes to the production of gold in the world. The AUD/USD pair rises and falls in relation to the gold prices as gold is considered by most investors as a safe haven as inflation does not affect the value of gold.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.