Why is the AUD/USD so popular?

Australia is not a very large country in terms of GDP and population, yet the Australian dollar is the fifth most traded currency. The reason that traders are so interested in the AUD, and in the AUD/USD in particular comes down to geology, geography, and government policy. Geology is important because it’s given Australia a huge array of valuable commodities for trade. Speaking of trade, geography has placed the country in an ideal location to trade with Asian nations that have an insatiable demand for those commodities. And government policy gives a stable economy and interest rates.

When is the best time to buy the AUD/USD?

When commodity prices are rising it tends to weigh on the economies of developed and developing nations as they end up spending more to acquire the commodities they need. By contrast Australia does very well since its economy is heavily based on the sale of its commodities. This means the Australian dollar is good to buy during times when the hard commodity prices are rising, or are already very high. It’s also good to keep an eye on Asian demand for Australia’s commodities since strong Asian demand is also a positive for the Australian economy and the Australian dollar.

What factors have the most influence on the AUD/USD exchange rate?

There are two factors that can weigh most heavily on the AUD/USD. The first is, unsurprisingly, trade relations between the U.S. and Australia. While the Australian dollar is impacted by Australia’s trade with Asian nations, this pair is most heavily influenced by trade between Australia and the U.S. The other factor is the interest rate differential between Australia and the U.S., with the higher Australian rates making the Australian dollar more attractive when compared with the U.S. dollar. If that were to change and U.S. interest rates increased the U.S. dollar could become the more attractive in the pairing.

AUD-USD Trading

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AUDUSD is the ticker symbol for the Australian dollar and the US dollar exchange rate. Also known as the ‘Aussie’, the AUD-USD currency pair belongs to the ‘major’ group in forex trading. This means that it includes the USD, is traded in high volumes, has high liquidity and offers minimal spreads compared to minor and exotic currency pairs. As of October 2019, the Aussie is the fourth most traded currency pair in the forex market, with traders particularly encouraged by the volatility it offers during the ‘dull’ Asian trading sessions. In the AUD-USD forex rate, the AUD is the base currency, while the USD is the quote currency. This means that at any given time, the price of the AUD USD pair represents the amount of US dollars (USD) it would take to exchange for one Australian dollar (AUD).

AUD USD Trading History

The AUD-USD pair combines two currencies with significant roles in the global economy. The Australian dollar was introduced in 1966, replacing the non-decimated Australian pound that was pegged to the UK sterling pound. As of October 2019, Australia remains the 12^th biggest economy in the world and a major exporter of precious metals and various other minerals, such as iron ore and coal. This is why the AUD is often referred to as a ‘commodity currency’ in the forex market, with its value positively correlated to global spot commodity prices. Australia is also a major trading partner of China, and actually one of the few nations that run a surplus with the Asian trade giant. About a third of Australia’s exports go to China, and the expansion or slowdown of the Chinese economy will have a direct impact on the AUD. Aside from China, the US is also an important trading partner for Australia. Following the ratification of the Australia-United States Free Trade Agreement (AUSFTA) in 2005, Australia has seen direct foreign investment from the US worth more than a $1 billion, with US exports to Australia growing almost two-fold since. It is also important to note that most commodities in the international markets are denominated in US dollars, effectively making the AUDUSD a price barometer for the entire commodity market.

AUD-USD Trading Price History

A slowdown of the Australian economy before the turn of the millennium dragged the AUDUSD to print its all-time low of 0.4855 on March 1^st, 2001. An upturn in fortunes set up the Australian economy on a growth trajectory, pushing the AUD-USD to a high of 1.0967 on April 1^st, 2011. Commodity price crashes since 2011 have piled pressure on the AUD USD; from 2015-2019, the pair has traded between 0.8300 and 0.6500.

Major Influences on the AUD USD Pair

Chinese Economy
As the major consumer of Australian exports, China has a direct and significant impact on the AUD-USD value. The massive growth of the Chinese economy since the turn of the millennium has coincided with the strengthening of the Australian dollar. Chinese expansion headlines will always provide tailwinds to the AUD, while recession undertones will provide the headwinds.
Reserve Bank of Australia
RBA is the Central Bank of Australia and its board members meet eleven times a year, on the first Tuesday of every month, except January. The minutes of the meetings are published after two weeks, and it is very important to track them. Aside from interest rates, hawkish statements from majority of members will strengthen the Australian dollar, while dovish tones will pressure the AUD lower.
Commodity Prices
As a major exporter of commodities, Australia’s economy will be directly impacted by global commodity prices. This will consequently influence the Australian dollar and the AUD-USD rate. A case in point would be the suppression of gold and oil prices since 2011, which has pressured the AUDUSD lower despite higher export volumes from Australia.
Australia Bureau of Statistics
ABS is Australia’s national statistical agency, and it produces and publishes key economic and social data that can trigger major price movements on the AUD USD. It is important to watch out for monthly and quarterly data releases on the Trade Balance, the Labour market, GDP and the Consumer Price Index (CPI).
US Federal Reserve
The Federal Reserve is the major body that influences US dollar price movements. The Fed releases interest rates 8 times a year as well as an accompanying rate statement that provides a clue on its expected monetary policy direction. These dates are important for all US dollar traders.
US Bureau of Labour Statistics
US dollar strength or weakness will obviously impact the AUD-USD exchange rate. The US Bureau of Labour Statistics releases major employment and consumer prices data that can trigger massive price movements on the US dollar. A key date for USD traders is the first Friday of every month when the Nonfarm payrolls (NFP) data is released.

Why Trade AUD-USD Pair

Volatility
Many traders like the virtually eternal volatility of the AUD USD, with the pair probably one of the few that guarantee volatility throughout all trading sessions. The Asian trading session is characterised by low volatility across the forex market, but that is when the AUD-USD springs to life, and stays awake throughout.
Correlations
The AUD USD currency pair has a positive correlation with gold and the NZDUSD (New Zealand dollar and the US dollar) pair; and a negative correlation with the USDCAD (US dollar and the Canadian dollar) pair. A positive correlation means that both assets will tend to mirror each other’s price action, while a negative correlation implies that the assets will tend to move in opposite directions.

AUD-USD FAQ

Why is the AUD/USD so popular?
Australia is not a very large country in terms of GDP and population, yet the Australian dollar is the fifth most traded currency. The reason that traders are so interested in the AUD, and in the AUD/USD in particular comes down to geology, geography, and government policy. Geology is important because it’s given Australia a huge array of valuable commodities for trade. Speaking of trade, geography has placed the country in an ideal location to trade with Asian nations that have an insatiable demand for those commodities. And government policy gives a stable economy and interest rates.
When is the best time to buy the AUD/USD?
When commodity prices are rising it tends to weigh on the economies of developed and developing nations as they end up spending more to acquire the commodities they need. By contrast Australia does very well since its economy is heavily based on the sale of its commodities. This means the Australian dollar is good to buy during times when the hard commodity prices are rising, or are already very high. It’s also good to keep an eye on Asian demand for Australia’s commodities since strong Asian demand is also a positive for the Australian economy and the Australian dollar.
What factors have the most influence on the AUD/USD exchange rate?
There are two factors that can weigh most heavily on the AUD/USD. The first is, unsurprisingly, trade relations between the U.S. and Australia. While the Australian dollar is impacted by Australia’s trade with Asian nations, this pair is most heavily influenced by trade between Australia and the U.S. The other factor is the interest rate differential between Australia and the U.S., with the higher Australian rates making the Australian dollar more attractive when compared with the U.S. dollar. If that were to change and U.S. interest rates increased the U.S. dollar could become the more attractive in the pairing.