Euro and Australian dollar currency market – Forex

Instrument description

In the forex market, both the Euro and Australian Dollar feature in the list of major currencies and the trading pair between the two currencies is given by EUR/AUD, where Euro is the base currency, and Australian Dollar is the quote currency. The traders like to speculate on the rise and fall of Euro by pairing it with other major currencies, and some of the notable pairs include EUR/USD, EUR/JPY, EUR/GBP, EUR/AUD, and EUR/CAD. Both the EUR and AUD are ‘major’ currencies, but their pair is called a ‘minor’ cross.

The exchange rate of EUR/AUD shows how many Australian Dollars are needed to buy one Euro. For example, if the current rate shows that 1 EUR is equal to 1.63 AUD, it means it will take you 1.63 Australian Dollars to buy 1 Euro. The Euro has always been the dominant currency of the two, but the pair is one of the commonly traded pair and provides both lucrative trading and investing opportunities.

The EUR/AUD pair accounts to 1% of the total daily Forex transactions and considered as a cross pair. Both the EUR and AUD are most frequently traded currencies where EUR features in over 30% of daily Forex transactions while AUD is involved in almost 7% of daily Forex turnover. The volatility in the commodities prices, stable monetary policies and global economic cycles usually provide favorable and long term trading and investing opportunities for the EUR/AUD pair.

History of EUR/AUD Currency Pair

The Euro, although introduced two decades ago in 1999, is ranked the second most prominent currency in terms of liquidity and volume of the transaction after the U.S Dollar. The Euro is a common currency in a large portion of the Eurozone, and though a fairly new currency, the Euro quickly developed into a dominant force in the Forex market. The Euro has an insignificant role in the development of the EUR/AUD pair, but the economic data releases do impact the direction and future price of the EUR/AUD pairing.

The Australian Pound was substituted by the Australian Dollar (AUD) in the 1960s and its imports and exports to bigger Asian market impacts the value of AUD. For decades, the AUD has remained a stable and strong currency due to its export of commodities that includes gold, coal, iron ore, and wheat. The Reserve Bank of Australia determines the value of AUD, and the Australian government keeps the interest rates low.

According to facts and figures, E.U has limited trade with Australia, and among the E.U countries, only the U.K. and Germany are the two most significant trading partners of Australia. In the trade relationship between E.U and Australia, the exchange includes vehicles and machinery from Germany and the U.K. while metals and agricultural goods from Australia. When there is a strong economic activity, then the EUR increases in value, but the value of EUR weakens when the economic activity slows in the Eurozone.

As a cross currency pair, when trading the EUR/AUD pair, the Euros can easily be converted into Australian Dollars without the need to first convert the Euros in U.S Dollars. The EUR/AUD pair reached a low value of 1.1619 in 2012 due to European debt crisis, but from July 2012, the pair has regained due to intervention and policy of Outright Money Transaction (OMT) by European Central Bank (ECB).

Australia has rich reserves of metals, and particularly gold and the country is the third-largest gold producer with exports worth $14 Billion each year. But any changes in gold prices impacts the value of AUD and EUR/AUD pair subsequently. For instance, if the price of gold falls, then the value of AUD will also fall. Similarly, if the gold prices increase then the value of AUD will also rise.

How to Trade EUR/AUD Pair

The trading of EUR/AUD pair among other options can be done through a Forex contract and by Contract of Difference (CFDs), which is becoming a popular option among short term traders. CFD is a derivative financial instrument where a trader speculates the price difference of the underlying asset. As a trader, you can use leverage which means been able to trade larger positions by depositing a smaller amount in your account.

You can speculate on the price changes of the EUR/AUD pair, and each correct prediction magnifies your profits, but each wrong prediction results in equal losses, but you can apply a risk management tool such as stop loss to try to minimize your losses. You can also trade both long and short; for example, if you believe that the EUR will appreciate against the AUD, then you would Buy or go long, and conversely, if you think the EUR will depreciate against the AUD, then you would Sell or go short.

How to read the Price Change in EUR/AUD Pair

The EUR/AUD pair is traded 24/7 from Monday to Friday, but it is best to trade positions when the market is most active, and it usually tends to be from 8:00 A.M to 5:00 P.M in the U.K. The ability to open and close gives a significant advantage to the traders, but mostly the trading is done when the market is most active. The EUR/AUD pair displays a tight spread and the news releases and announcements act as catalysts and traders can predict the price action and direction of the market by analyzing the price charts with gives current and historical pricing of the EUR/AUD pair.

The EUR/AUD pair is known for its frequent fluctuations and in different directions If we look at the EUR/AUD price chart, the pair reached a high of 1.888 on March 18, 2020, and then there is a clear downward trend, and lowest value of 1.603 was recorded on June 8, 2020. The current value of the EUR/AUD pair is 1.634. The Bid or Buy price is 1.6342, while the Ask or Sell price is 1.6340.

What causes price change in the EUR/AUD pair?

The exchange rate and direction of the market of EUR/AUD pair is influenced by economic factors, financial news and policies of the countries in the E.U. and Australia. The financial policies of E.U. and Australia are quite different as E.U. represent 27 member states while Australia is a single and independent country. The difference in decisions and policies makes fundamental analysis and forecasting for the EUR/AUD pair quite challenging.

The macroeconomic factors in the E.U. rely on industrial sector while the economy of Australia relies on natural resources and agriculture. The common macro-economic elements that influence the value of the EUR/AUD pair include interest rates, Gross Domestic Product (GDP), employment rate, inflation, and consumer sentiment index. The EUR/AUD quote is also affected by the changes in the global prices of raw materials.

The Australian Central Bank (ACB) and the European Central Bank (ECB) rarely get involved to influence the pricing of the EUR/AUD pair. However, the policies and decisions of the two banks do impact the future value of EUR/AUD. The pairing of EUR/AUD can serve as a good option to diversify the investment portfolio and hedge against risk, but the EUR/AUD is susceptible to sudden and unpredictable fluctuations, so the trends, patterns must be evaluated, and risk management techniques should be considered to minimize the risk of financial losses.

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