Why Should You Care About the AUDUSD?

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AUDUSD or AUD/USD is the notation for the currency pair consisting of the Australian Dollar and the United States Dollar, or as it’s known colloquially, the “Aussie” (despite the AUD trading with other currencies, chiefly the JPY). The value corresponds to how many US dollars (the quote currency) are needed to buy an Australian one (the base currency).

Characteristics of the Pair

This pair is considered to be one of the eight currency “majors,” the ones that are the most traded and typically have the most volatility. Despite going through a bit of a downturn recently, the Australian economy is still one of the world’s largest at $1.32T in 2017, though, of course nowhere near as big as the US at $19.4T.

The Australian currency is one of the latest additions to the forex world, being free floating from just 1983. However, it has a well-earned reputation for relative stability, despite the economy being highly dependent on commodity exports, making it one of the “commodity currencies.” 

Also, interest rates tend to be relatively high in Australia. This makes it a preferred target for carry trades. Conversely, the US dollar is seen as a safe-haven currency, and investors will often retreat to it when commodity prices aren’t doing so well.

The Big Players

Monetary policy in Australia is set by the Reserve Bank of Australia (RBA), which has the job of keeping the currency stable within a target inflation range of 2-3% annual. 

The RBA is known for being quite conservative and intervening less frequently than other central banks. However, those interventions when they do occur, can move the currency quite a lot. In fact, even just the expectation of a potential intervention will impact the currency.

Monetary policy on the American side is set by the Federal Reserve (Fed) which has what is called a “dual mandate” to keep inflation low and maintain unemployment at a structural level. Because of this, the Fed will intervene in the markets not just to maintain price stability, but also to help prop up the economy.

What Makes the Currency Pair Tick

Because of the relative size of the countries involved, movements in the pair are more often driven by the Australian side. 

While the US dollar responds to major US-based economic events, as well as safe-haven flows, tThe Australian currency is dependent on moves in its major exports, such as commodities and agricultural products, which are shipped to their largest trade partner: China. As such, Chinese economic news can filter into the Aussie.

During periods of economic uncertainty, the price of commodities will typically drop, putting pressure on the Australian dollar. On the other hand, uncertainty makes investors seek safe-havens, like the US, helping to strengthen their currency.

Sydney is also one of the financial centers of the far east, making the Asian session a good time to trade this currency pair. Unlike most other currency pairs, the Aussie tends to be more consistent in its trading activity through the entire day.

 

To keep track of the major events that could impact this currency pair, be sure to check out the economic calendar available on the Orbex website, as well as the trading tips sections to help you get the most out of your trading.

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