AUD USD is an acronym that stands for or denotes one of the major currency trading pairs – Australian dollar and U.S. dollar currency pair. This currency pair is also called currency cross because it’s a derivative of currencies AUD and USD respectively. And it is also often called by the name Commodity Currency too. The reason is that Australian economy is highly influenced and dominated by commodity.
To a Forex Trader AUD USD currency pair indicates total number of U.S. dollars that he will be required to spend to purchase one Australian dollar.
While putting the pair on paper it is written like this AUD USD. AUD – Australian Dollar is written ahead of the United States Dollar. The Former is known as the base currency, which is AUD in this case and the one appearing latter is the quote or counter currency, which is the United States Dollar.
Let us rephrase the above description in more understandable and simple terms. The value or worth of the AUD USD cross pair is quoted by Forex traders as 1 Australian dollar per ‘n’ number of U.S. dollars. Say this cross pair is trading or operating at 1.50, it means that the trader or an individual will be required to spend or shell out 1.5 U.S. dollars to be in a position to purchase 1 Australian dollar.
Trading the currency cross AUD USD, amongst the professional and real time trading circles is also known as trading the “Aussie”. Aussie holds sixth position when we talk about the most traded currencies in the world. Aussie enjoys popularity mainly because it offers high interest rates in the country.
Exchange rate of AUD USD cross currency pair can be influenced by several factors that could be geographic, or economic, in nature. These influences can alter as well as manipulate the value of both currencies individually, vis-à-vis each other, and/or also with other currencies.
The factor that is most likely to influence the value of either, or both of these currencies in relation to each other – is the interest rate differential existsent between RBA and FED. Whether this influence will tilt in favour of the trader or will affect the exchange rate of the pair adversely is something that will be based on the fluctuation in Interest Rate.
Let’s assume for instance that the Federal Reserve mediates or arbitrates in open market activities to make the U.S. dollar stronger, in this situation the worth of the Australian vs. United States Dollar (AUD USD) is quite likely to take a drop as a result of strengthening of the U.S. dollar compared to the Australian dollar.
Another thing that traders concentrating on toying with AUD USD pair, need not forget is the correlation aspect of the pair vis-à-vis other currency pairs or crosses because this knowledge will come in useful while making profitable trading decisions or striking winning deals in short as well as long run. This tip is for all types of traders to keep in mind.
The AUD USD shares an unfavorable correlation with USD/CAD, USD/CHF and USD/JPY pair. USD happens to be a quote currency in AUD USD pair where as in USD/CAD, USD/CHF and USD/JPY its base currency.
It enjoys positive or favorable correlation with USD/CAD. And this could be because of the fact that AUD USD shares favorable correlation with the Canadian dollar and the Australian dollar both. Both these economies i.e. Canadian economy and Australian economy are resource or commodity oriented and have more or less a similar economic format or structures.
About AUD USD – Exchange Rate & Popularity Influencers
The Australian Dollar or AUD is also sought by other names like Pacific Peso, and as already mentioned in the beginning on this lesson – the Aussie. AUD is an acronym for Australian Dollar and its official signature is – A$.
Australian dollar is the official; legally certified; & within and outside acknowledged currency belonging to the Commonwealth of Australia.
AUD USD claims of uppermost rate of exchanges against the Japanese Yen and Canadian Dollar.
The explanation for AUD USD to be so much in demand amongst the currency traders is due to (and to a great extent) lack of Australian government’s interference or intervention in the FX market. Second reason for it being a highly sought after tender is, that the Australian economy and government are relatively sound, stable, healthy and robust.
Also, the fact that the Australian dollar offers portfolio diversification advantage when it comes to global currencies in major category is another basis for the currency being traded so widely. This again in turn may be due to factors like exposure of AUD USD to Asian side of market etc.
AUD (Australian Dollar) can be equally divided into one hundred cents. At the time of writing this post, the smallest coin circulating in the market equaled five cents; one cent coin along with two cent coins have been withdrawn by authority from circulation and tendering during the 90s. As far as cash transactions are concerned they are rounded off- up or down depending on the nearest multiple of five Australian cents.
For several years now Australia’s export vs import balance has been highly relying on commodity exports such as mineral resources, agricultural products and so on. This influences AUD’s value, and strengthens the worth of 1 AUD against USD substantially in the course of trade cycle.
AUD has tendency to move forward during the time global markets on the whole are up surging as Australia is a country that focuses on exporting raw materials big time. The AUD likewise shows a prominent drop when prices of minerals fall or when their home spending gets better off the business overseas and their earnings position thereof.
AUD USD currency cross’ movement in the background of the world economy is generally noticed to sway in the contrast direction, which is not how most other major currencies would react in similar situation.
The other major currencies are more sought after at the time of such downturns or slouching economies as this is the time frame when the traders decide to shift the value from falling stocks into liquid cash.
This results in giving rise to some unorthodox flux and highly unstable exchange rates. This particular issue is responsible for making the AUD USD pair typically one of the most highly traded or voluminous currency pairs in the world to an extent.
Dynamics Affecting the Demand for Australian Dollar
If traders start to compare AUD with USD or legal tender of whichever country, they will notice that AUD value will be directly affected by the demand existing for Australian merchandise or products. If their products are in great demand in United States and in other global markets, then in that case their rate of interest is bound to be leaning in favour. This in turn goes to keep the confidence level of investors on the high. And market will present so many situations and so many favourable situations when there is going to be inflow of foreign investment in Australia. This will impact and strengthen the value of A$- Australian Dollar.
The first and foremost reason for an AUD to be affected positively is when demand for Australian goods and services are in high demand amongst foreigners or are in demand by overseas consumers.
To buy goods and services of Australian origin, the costumer or end user will be required to convert his home currency into Australian dollars to be in apposition to pay for goods and services made in Australia. This means that increase in the demand for Australian exports which will increase the value of the Australian dollar.
Factors that have the power to trigger the demand for Australian exports will mainly comprise tastes and preferences of consumers for Australian goods and services and as and when this happens, it will eventually result in inflow of foreign capital.
So it becomes all the more important for Australian economy and economists and consumer behaviour experts to know the pulse of global market and consumers, and have an idea about what kind of things are overseas customer particularly interested in at this point of time, for which they will be willing to shell out money.
An encouraging scene was witnessed and experienced to some extent in Australia in the Tourism arena for some time. Economists were expecting it to grow further and shape up nicely, however the 9/11 accident proved to be a huge and kind of an irreparable setback for the economy.
Thus changes in world economic condition is also amongst factors that can impact demand for Australian dollar.
During recession the A$ demand was hit for a while. On the other hand the upsurge in the resources during the year 2007-08 witnessed a favourable impact on the value & strength of the AUD which went on to appreciate at a steady pace during the phase when Australia was successful at selling raw supplies of resources to China and Japan that were manufacturing big time and in bulk quantities.
Another dynamic that has the power to improve and increase the demand for Australian Dollar is the worldwide competence in comparison to the cost of goods and services. Upsurge in cost or basic exchange rates can also make a dent and result in loss in markets focusing on export, which will straight away hit the worth of AUD and impact it adversely by reducing AUD’s demand. And due to this Australian dollar’s worth will take a significant hit. Likewise the opposite situation will also hold as true. The lower rates of inflation will increase the demand for Australian exports, and the value of the Australian dollar will appreciate.
Another factor that will help value of AUD to strengthen – is the incoming foreign capital by way of foreign investment. This money will come in Australia via those individuals who are interested in investing in Australia in their home currency.
Here too, interest rate plays a major role and is a key factor that can influence decision of foreign investors who are contemplating investing in Australia. If Australia’s Rate of Interest is higher than prevailing interest rates of investor’s home country at that time, then the foreign investor is more likely to divert his funds to Australia. This in turn will mean improved incoming capital for Australia and rise in demand for Australian currency.
The second factor that the foreign investors will always be watching out for is the elevated level of economic growth. This will lead to many positive reactions. First outcome is that, this economic situation will lead to improved demand for Australian dollar; second, it will improve foreign investment inflow; third, the capital inflow will increase.
If foreigners interested in investing in Australia think that the value of the A$ is likely to increase in the future, they will in all likelihood sell other currencies and buy Australian dollars.
This theory on speculation can also bring in an increase in the demand for Australian dollars which will build upward pressure on the exchange rate as Forex transactions across the world are done with assumption in mind and an objective that one will be right and be able to book profits.
As traders continue on their trading journey, they will continue to learn their own lessons which will help them to sharpen their trading skills and become masters at trading the AUD USD pair.
Despite being such a prosperous sounding structure, Australia kind of suffers a disadvantage because of its geographical location. It is somewhat inaccessible and remote and has a scarce population. It becomes necessary for the country to place bulk import orders for goods which is not possible for them to produce on their own. These imports can also result in unbalancing of trade and shortfalls that put a pressure on the Australian dollar.
Keeping an EYE on Australian Economy
Australia is amongst the world’s most rich country when it comes to natural-resourced along with being a modern industrialized economy. Coming to keeping a watch on the economy, whether it is a beginner or an experienced trader, whether one is a long term trader or a short term trader, irrespective of everything, as long as one is trading AUD USD currency pair, they have to get used to keeping a watch on the economic announcements coming out of Australia and ensure to keep their eyed on Cash Rate announced by Reserve Bank of Australia ; Change in employment & unemployment rate; Consumer price index; Producer price index; the Commodity prices etc.
First Understand, and Then Trade the Australian Dollar
The currency of Australia, AUD is indeed amongst the top activity reflecting currencies but at the same time they are also less liquid as compared to the currencies of the United Kingdom, Japan or the Euro-zone. Also, comparing the economy of Australia, which is a commodity-producing economy to that of the United States, is unfair because they are two very different economies with their own plusses – peculiar and unique to themselves.
Generally investors should learn to concentrate on the trend in commodity prices to decide if the chances of Australian Dollar are more towards rise or fall in the near future. Also traders doing speculation in Australia should keep the comparative interest rates at the forefront, because they make for popular destinations for the carry trade.
When interest rates prevailing in Australia are higher than what is prevailing in countries like Japan, there is a possibility that the traders might employ the carry trade tactic by way of selling the yen and spending on the AUD or New Zealand dollar. This type of trading helps to shoot up the value of the Australian dollar.
When disparities related with interest rates move in opposite direction or market’s unpredictable nature drives traders to go back to their stance, the Australian dollar is likely to take the brunt of it and decline at a fast pace.
Traders beware that investing in AUD may lead to a situation that directly exposes him/her to the commodity prices impact. Although the commodity currencies like AUD typically moves in sync with commodity prices, the currency is also triggered or affected by factors that may not be directly related to it.
These things can avert commodity currencies from becoming an exclusive game on prices based on commodity. People who want to focus on commodity trading should evaluate and be sure whether they actually want to trade this commodity currency or would rather be investing directly in such commodities.
Factors That Weaken / Strengthen the Australian Dollar
There are several factors that can influence the movement of AUD. The most basic determinant of the movement of the commodity currencies however is the price of commodities. As the price of commodities rise – the Australian Dollar strengthens. Likewise when commodity prices fall or become weak, the currency also weakens.
In a situation when the commodity prices are up and AUD is going strong, this is the time during which the country usually grows comparatively at a faster pace, which leads to high interest rates on domestic turf. And high interest rates contribute towards making Australia popular with the carry trades, wherein Forex traders tend to sell currencies that are giving them low return on investment to reinvest the proceeds in currencies that will help them get better returns.
These carry trades can drive the prices of AUD higher than it otherwise might have been. However, when monetary situations undergo a change, the carry trade situation gets upturned within a very short span of time, and there is a possibility of fast decline in the value of currency or otherwise.
History of AUD
Initially AUD was pegged to British Pound, wherein, the British Pound controlled the value of AUD. As a result AUD rose and fell as the pound did. Then in 1946 B Woods system was introduced, according to which AUD got pegged to US dollar, which also backfired after a while and the AUD was brought back to its original status.
After a few years of brainstorming and planning, the Australian dollar was launched on fourteenth of February, 1966 as the new decimal currency. All their coins had image of Queen Elizabeth II on the front and are minted at the Royal Australian Mint.
The deregulation of Australia’s financial system that followed helped to expand the scope for financial advice as demand for advisors grew in financial arena. It impacted exchange rate fluctuations worldwide, becoming recurrent in nature, capital flows attained higher significance; fiscal shortfalls also became bigger.
Another fall out of deregulation was that internally the open-market system was now the focus of the Reserve Bank’s operating system. Then came the tender system for Treasury notes, and bonds, and eventually it resulted in the Australian dollar being launched in 1983.
Then due to intervention on the part of Prime Minister Bob Hawke along with Treasurer Paul Keating during 1983, when de regulation of the system generated momentum, that the AUD USD started showing some strength in the exchange market.
When we speak of AUD USD vis-à-vis the structure of Australian economy, we understand that the exchange rate for AUD USD cross pair depends on the raw material rates. Because of the fact that the Australian interest rate is one of the factors that triggers the investors to go for AUD with an objective to do “carry-trade” operations.
International influences on the AUD – Australian Dollar
During the time period when the world as a whole was addressing the issue of globalization and deregulation, was when value of Australian dollar experienced a great deal of turmoil as well as fluctuation.
Some of the major factors that affected the value of AUD were, Overseas Interest Rate Differential; Global Stock Market flux; Level of Confidence amongst overseas investors; Geographical and Political turbulences that economies faced at that time; and so on.
The first things traders recall while discussing this aspect is the crises market faced by the US in the year 2007 which went on to make a dent in most of the stock markets globally.
Then in the same year, i.e. 2007, RBA took a stand which helped the AUD in its history of 23 years reach its best value against USD.
The other favourable situation for the AUD’s reputation was the projection of scope of expansion of the Federal Reserve as the US economy at that time was clearly showing signs of slowing down.
The AUD presently depends on its commodity and merchandise export like gold, iron, and copper. These commodities account for nearly a billion AUD which makes for more than fifty percent of its overall export.
Any alterations in the market for these commodities tend to bring volatility and movement in the value of Australian Dollar. For almost fifteen years, the Australian Dollar has been showing growth at a stable speed within the fiscal cycle and has introduced quite a few opportunities vis-à-vis world trade.
Australian dollar has managed to consolidate its position due to many reasons. The first major factor is related to china’s consistent growth curve. China gets lots of things exported from Australia which as a result strengthens value of AUD.
Then another reason for strengthening of Australian economy and its currency is the abundance of Uranium reserves found in Australia. This provides the economy and its currency, the AUD with solid stability.
Uranium has an important role to play in minimizing the energy crises and dealing with global warming – issues we are facing and fighting globally.
About the Domestic influences on the Australian Dollar
Coming to the domestic factors that have an impact on the AUD, they include, level of interest rates, level of economic growth, inflation amongst several economic indicators.
Even the Reserve Bank of Australia has the power to influence the exchange rate level when there is a heavy movement or upheaval by trading in the Forex market as a purchaser and vendor of the AUD currency. This kind of practice is meant to act as a cushion to save it from economic shocks externally before its effects start to become disruptive for the domestic economy.
AUD USD – Pair Correlated With Gold and Oil
The most critical fact about Forex market is that price of gold, crude oil and Forex markets are closely knit and woven. As a Forex trader, if Forex trader’s conditions his mind to keep a watch on fluctuation in gold prices & oil this will Fine tune his analyses further and he will help him to predict price changes that much more accurately.
Gold and oil prices are considered to be leading pointers in Forex trading. Gold, oil and Forex – these three markets moves are based on the same fundamentals.
Breakout trading in this environment can prove to be highly profitable if done correctly. The problem is it is not always easy to identify a true breakout from a rumoured or false breakout. That’s where d experience and analytical skills of a trader comes into play.
The basic principal is that when USD rises, gold prices take a hit and when USD falls, gold prices shoot up. This is the reason traders often notice this happening with the currency pairs such as the Australian Dollar-US Dollar Pair, New Zealand Dollar and USD and US Dollar-Franc currency pair, which mirror movements and changes happening in gold prices.
The Australian dollar (AUD) is positioned highly amid major currencies category in the Foreign Exchange Trading market. It is also treated as a commodity currency because Australian economy relies very highly on commodity exports and they are used to keeping huge reserves of oil and gold besides other commodities.
AUD & USD Currency Trading
The AUD-USD pair is made of two components, the Australian dollar, appearing first and is the base currency, and the US dollar that appears later is known as the ‘counter’ or ‘quote’ currency. The pair is also popularly referred to as Aussie by traders. The AUD USD rate of exchange is evaluation of one currency versus the other.
Since Forex trading happens when one currency is compared to the other, AUD USD is not a very complex pair to trade irrespective of market situation. AUD USD trading is a preferred pair as it helps to reduce risk on the holdings that he has since it facilitates the trader to book profits in markets that could be moving upwards or downhill. In recent past, it has been often observed and recorded that the AUD USD exchange rate is influenced by rate of interest and prices of various commodities like gold, crude oil etc.
The reason why the Australian dollar trades in such high volume is because of its global recognition and the liquidity which the currency offers.
The Reserve Bank of Australia sets terms and is responsible for maintaining and keeping the exchange rates of the Australian dollar stable and sound. The Forex rates in Australia heavily rely on the exchange rate of Australian dollar vis-à-vis other currencies across the world in all the markets.
The Forex trading market in Australia trails floating exchange pattern.
Trading the Australian Emp Exch – AUD USD
Australia releases its employment figures at regular interval. These all-important figures invariably rock the markets in positive or negative direction depending upon the report.
Best Time to Trade AUD USD Pair
When to Trade is based upon volume and activity of traders. However the most appropriate time to speculate on AUD USD currency pair is during the overlap time-zone. Simply for the reason that during the overlap time, i.e. when one market is about to close for the day and the other warming up and getting ready to open with a fresh day ahead of them, is the time when traders from both countries will be on trading platform.
As one set might be on the verge of closing deals the other set might be looking for fresh opportunities to invest. Number of active participants is at their maximum at this point of time and this has direct influence on momentum that can fuel breakouts and trends. This situation can also surface during the time of releasing of economic data, providing the triggers for the movements in currencies.
When to Trade Depends on Ones Trading Style
The best or most unpleasant time to trade besides other things also depend upon the trading attitude or style of trader. Let’s consider an example – trading strategies like breakout trading, momentum trading, trends trading are generally seen to deliver better results during active, voluminous market hours whereas what is known as range trading is seen to work at its optimum during what are called the relatively inactive, or slow or sleepy hours.
Range Trading is suitable for day traders. And the best times to Range Trade are; between two trading sessions; just before the market is coming to a close; an hour or two before breaking of an important economic announcement.
There is a difference of timing when it comes to Breakout Trading – it is advised that it is done keeping economic announcement in mind but at the time then the market is opening.
Coming to Momentum Trading, it is most suitable when followed by the breaking of financial news or statistical data; because if the announcement is significant, the market will most definitely show the impact within next few hours.
In this kind of trading it is very typical of AUD USD traders to watch out for stocks that are displaying movement in high volume as well as one direction. This is the situation which will push the traders to hang on to their position starting from a few minutes, to one whole trading day. Length of time will depend on movement of stock and the direction it takes.
AUD USD is the most voluminously trading pair, accounting for nearly forty percent of trading revenue. The pairs that come next to AUD USD are EUR/USD, & USD/JPY with twenty and ten percent share respectively.
When a trader seriously decides to get into trading and making investing in currency market he will always be at an advantage if he/she does it based on knowledge instead of impulse. It will do her a lot of good if she enters the market will full knowledge of the kind of work that goes into it rather than just profit records of some winning trader. And when it comes to Australian the people there have such a clear understanding of their currency and their economy, that they are rarely seen to make mistakes with AUD USD which also happens to be their favourite pair amongst a few others.
Of course, another reason is info released by BIS and is inclusive of all transactions irrespective of whether they are speculative or non- speculative in nature, and for majority of citizens of Australia, any type of Forex trading will comprise one definite component in their preferred currency pair and that being the AUD.
Another feature of the AUD USD pair is that the trading range has a tendency to get widest at this juncture, which indicates that the chances of a breakout are at its peak between the London and New York trading sessions, which fall between 14:00 and 16:00 GMT.
This indicates that the most economically viable time to do range style of trading the AUD USD pair – it falls between three to five GMT, a few hours head of opening of the London market.
When the trading day is coming to a close, the time that one can strike most profitable and winning deals actually has more to do with the individual’s trading style and schedule more than anything else. If the trader prefers to get into range style trading, it will do him good if he decides to trade during Sydney’s peak working hours.
For a working individual who does not have time through the day because of office or any other occupation that he is busy with and it is possible for him to trade, after he is through with his pre-occupation, then it will do him good if he looks for break-out time-zones falling close to the opening of the trading session in London and if he can remain awake and feels at ease to get into active buying and selling during the night, he can take advantage of the time which partly covers the London session and partly covers the New York sessions for trading.
The important thing here is to avoid permutations-combination style of trading, or make an effort to get into range trading during the time when probability of breakout and untamed swings are their peak.
While trading the times of the year can also make a difference Volatility in the Forex market is more settled during the summer and picks up during the autumn and winter as the fiscal year end is coming to a close. Meaning, range trading will work better during June month and July month, and trend trading will fetch better results between October & January.
Taking Cue from GBP/USD & EUR/USD to Trade AUD USD
If investors do this small little exercise, it will help them see thru a lot of things clearly that will eventually help them trade better. What they should do is refer to their trading chart windows of past two or three days which show the Aussie Dollar in action. IF they observe it carefully, the purpose of taking this exercise up is fulfilled.
While observing EUR/USD and GBP/USD currency pairs, traders will notice that as the two go up, surprisingly the AUD USD too moves in the similar direction. Same holds true under a situation when the two former pairs take a dip, however it is not so random.
Finally, a Quick Glance at AUD USD Trading
The AUD USD is an aggressive currency pair for trading, always ready for action. It is also the 6th highest traded amid the range of international currencies. The pair according to reports releases also accounted for between 6.5% – 7% of worldwide currency trading in the year 2007.
The AUD USD often fluctuates keeping in line with the gold price. Investors and traders know gold as a safe investment against inflation, and therefore gold is one of the most widely traded commodities. Like the New Zealand Dollar, the Australian Dollar is also known by the name of commodity currency, because this economy is also commodity dominated.
In other words, the Australian Dollar’s strength, weakness, swings, spikes, everything depends on the price of commodities which mainly comprise minerals and farms. Traders may be aware that the Australian Dollar sees a fall or crash during the time prices of minerals go down and an upward move during global expansion phase.
For traders who are keen to trade this pair, should get the basic education and training before they jump on the wagon. One should never ever trade on an impulse. Apart from basic education and online and on the job training, they should also get their hands on the Advanced Technologies to trade the pair. Combining the advanced techniques and technologies in the market along with their education and training will take the traders a long way to help them analyze the market accurately as their analytical skills will be nicely fine-tuned.
The AUD USD shows a lot of price movements and fluctuations. Therefore, AUD USD is a good and interesting currency pair to trade. When a trader buys the AUD USD, he/she is helping Australian Dollar go up and American dollar go dowm at the same time. And when the trader goes takes a short position with AUD USD, it means he is selling AUD against USD.
Coming to timing your trade, European session is the most lucrative time to indulge in buying and selling of this currency pair. European session is alive and active between 2am to mid noon EST.
The AUS USD is affected by economic and fundamentals and news released by the USA as well as Australia. These news, are somehow relate to each other. Because of this, traders like to pay attention to the interest rate gap or disparity between the United States Federal Reserve and the Reserve Bank of Australia.
As the U.S. Federal Reserve tends to mediates where the interest rate are concerned, the currency market as a result of this witnesses a situation where the value of AUD USD pair goes down because of consolidation and strengthening of USD.
Traders should also remember that the Aussie shares negative or unfavourable correlation with USDCHF, USDCAD and Dollar-Yen pairs.
The AUD USD enjoys a favourable correlation with the USDCAD, because of the fact that the positive correlation exists between the Canadian Dollar and the Australian dollar since both these economies are similar in structure and also because of their dependence on resources which is a driving force behind the GDP.