Forex Trading Strategies for GBP/AUD | Expert Tips & Analysis

Instrument description

Great Britain has a long history and mutual relationship with few developed countries, and one of them is Australia, the two countries are economically stable and considered a dominant force, whether it is international politics or trade. The currency of Great Britain is the Great Britain Pound and represented by GBP, while the currency of Australia is called the Australian Dollar and denoted by AUD.

In the list of major currency list, the Pound is the fourth most traded currency, and the Australian Dollar is right behind at fifth. The pairing of Great Britain Pound with the Australian Dollar is given by GBP/AUD. Although both GBP and AUD are major currencies that are traded in the Forex market, the GBP/AUD is called a ‘cross pair’ where GBP is the base currency, and AUD is the quote or counter currency.

The exchange rate shows how much one currency is needed to buy one unit of another currency. For example, if the current GBP/AUD value is 1.81, which means that 1 Pound equals 1.81. Australian Dollars, or in other words, you would need 1.81 AUD to buy 1 GBP. The GBP/AUD pair may provide an ideal investment opportunity to move away from the four major pairs and a useful option to diversify the portfolio.

History of GBP/AUD Currency Pair

The Great Britain Pound is the oldest currency and recognized as the global currency until the Second World War, and in 1971, Pound became a free-floating currency. In 1999, when the European Union introduced a single currency in Europe known as ‘Euro,’ the U.K. had the option to adopt it but kept the Pound as official currency. The U.K. is a small country by size but a very developed and economically stable country and has the largest economy in Europe after Germany and France. Britain is considered to be a leader in the aerospace and financial services industry, and its exports include finished goods, beverages, fuel, food, and tobacco.

The AUD is the fifth most traded currency all across the world, and AUD is known as commodity currency as Australia is filled with natural resources such as gold, coal, iron ore, copper, and wood. The Australian economy relies on exports and the service industry that accounts for 60% of the Gross Domestic Product (GDP). Australia being part of the Commonwealth, also used Pound as an official currency but replaced it with Australian Dollar in 1966. The AUD became a free-floating currency in 1983.

How to Trade GBP/AUD Pair

The GBP/AUD is known to see sudden and sharp price fluctuations. The frequent price changes and high volatility makes the GBP/AUD quite an attractive option for trading. The traders among other options can trade GBP/AUD pair using Contracts for Difference (CFDs), where traders will speculate on the price change of the underlying asset without having the need to buy and own the currencies. With CFDs, traders can use leverage, which means opening a larger trading position with a relatively smaller deposit. CFD trading, due to leverage provides chances of maximizing profits, but also losses on an equal level, so a risk management tool such as stop loss may be implemented.

Trading GBP/AUD pair through CFDs also allows traders to trade in both directions, which is either going long or short. If a trader assumes that the Pound will gain momentum in the coming days as compared to Australian Dollar, then he would go long or Buy GBP, and conversely, if the trader thinks that the Pound would weaken in front of Australian Dollar, then he would go short or sell.

How to read the Price Change in GBP/AUD Pair

When the value of currency changes, the change is relative to another currency. For instance, if the GBP/AUD quote goes from 1.27 to 1.30, it means that the GBP has increased in value as compared to AUD, and it would cost more Australian Dollars to buy one Great Britain Pound.

The EUR/NZD pair is considered to quite a volatile pairing as the daily price movements can reach 300 to 350 points, which is even more than the volatility of some of the other popular currency pairs. The high volatility provides a significant opportunity for short term traders to speculate the price movements and try to profit.

If we examine the price chart of the GBP/AUD pair, we note a relatively high value of 2.0471 on April 3, 2020. However, there has been a quite a downward trend since April, and the market reached a low of 1.8099 quite recently on June 8, 2020, currently, the GBP/AUD pair stands on 1.8060. The Bid price or buy price is 1.8047, while the Asked price or selling price is 1.8044. The future forecast is a Bearish trend for both GBP and AUD.

What causes price change in the GBP/AUD pair?

Due to the sudden and frequent change in behavior of the GBP/AUD pair, the fundamental analysis becomes quite difficult, but one should always consider the macro-economic factors of a particular country that determines the value of a currency. Being a cross currency pair, the macro-economic indicators of the U.S also matters as U.S Dollar is needed for calculating the cross-rates. The GBP/AUD pair is most active during the Pacific and European sessions as it is the time when financial news and reports concerning the U.K. and Australia are released.

The price of AUD is influenced considerably due to changes in prices of commodities such as gold, oil, and gas. The economy of the U.K. is based on services, raw materials, and industry. The technical analysis of the GBP/AUD pair is also not easy as it has a strong correlation with the EUR/AUD and then a reverse correlation with the AUD/USD pair.

The GBP/AUD pair is a unique pair to analyze and even more so in recent times since the U.K. left the European Union, and the economy of Australia is also facing quite ups and downs. In the U.K., since the vote to leave E.U. in 2016 to officially leaving the E.U. has brought tremendous pressure on the U.K. economy, and there is significant volatility recorded in the Pound and investors were needing convincing from the U.K. government to invest in Pound.

On the other hand, the Australian economy is commodity-driven, and prices of commodities directly impact the value of AUD. In recent years, the Australian economy has suffered immensely due to weather changes, and recent fires in 2019 burnt almost 46 million acres of land and staggering death of one billion animals. The economic impact due to the fires from mid of 2019 to 2020 was in access of $ 4.4 Billion.

The interest rate differential is another vital element that decides the price movement of the GBP/AUD pair. The Bank of England (BOE) and the Reserve Bank of Australia (RBA) usually monitors the currency changes and determines the interest rates, inflation, and employment rate. The difference in the interest rates allows traders to use the GBP/AUD pair for carry trades as well.

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