AUD/USD: What Every Trader Needs to Know

Forex traders tend to choose the AUD/USD pair due to its liquidity, appealing spreads, and its correlation with global economic trends. This currency pair frequently responds rapidly to economic data releases and central bank decisions, presenting a multitude of trading possibilities.

AUD/USD

AUD/USD represents the Australian dollar / US dollar currency pair. It indicates the amount of US dollars required to buy one unit of the Australian dollar. The Australian dollar (AUD) is the base currency, while the US dollar (USD) acts as the quote (or “counter”) currency. AUD/USD holds significant popularity as one of the extensively traded currency pairs in the валютный рынок, often influenced by commodity prices and market sentiment.

Why trade the AUD/USD pair?

The Australian dollar holds the position of the fifth-most traded currency globally in the foreign exchange market.

AUD/USD is considered a currency associated with risk or growth. Similar to the Canadian dollar or New Zealand dollar, the AUD is highly sensitive to fluctuations in commodity prices due to Australia’s significant exports of raw materials. Here are the key advantages of trading AUD/USD:

It’s a highly liquid pair:

AUD/USD is highly liquid, being one of the most actively traded currency pairs worldwide. High liquidity facilitates smooth trading, minimises slippage, and reduces costs. Liquidity is important in forex, as it allows traders to easily buy and sell the pair without big price fluctuations.

Spreads can be low:

Due to its widespread popularity, AUD/USD often has narrow spreads. Tight spreads help to minimise trading costs.

You can trade AUD/USD 24-hours, 5 days a week:
Since traders can trade the AUD/USD any hour of the working week, they can access several trading opportunities and enjoy a seamless trading experience.

Trading the AUD/USD using fundamental analysis

If you are using фундаментальный анализ, it is important to know what drives the pair to rise or fall. In addition to economic news and events that influence the AUD/USD, the connection of the Australian dollar to risk and its sensitivity to market sentiment, are also key. The AUD/USD tends to rise when market sentiment is positive and tends to fall when the global economy is not doing so well.

The price of iron ore, gold, coal and copper could also impact on the pair, as these are some of the commodities that Australia exports to the world. Below we look at some other factors that could move the pair.

When does the AUD/USD tend to rise?

1. The AUD weakens when:

• Economic growth in China improves.
• Australia’s economy is expected to avoid recession.
• The hawkish stance of the RBA and higher interest rates.
• The Australian economy demonstrates relative resilience, leading to expectations of continued rate hikes by the RBA.
• The strength of the Australian economy, coupled with the RBA’s monetary policy compared to the Federal Reserve, can also contribute to AUD strength.
• The Australian Dollar is expected to benefit from rising prices of raw materials.
• Commodities tend to perform well during inflationary periods, which benefits countries that are major producers, including Australia.
• Positive news from China.
• The RBA is likely to raise rates earlier than initially anticipated.

2. The US dollar weakens when:

• The Fed is more dovish as inflation falls.
• US dollar’s position as the primary global reserve currency is being challenged.
• Lower Fed rate expectations and improved risk sentiment.
• No more Fed hikes.
• US recession worries.
• Fed to cut interest rates quicker than foreign central banks.

When does the AUD/USD tend to fall?

3. The AUD weakens when:

• The continued downturn in equity markets.
• Ongoing issues in China and Ukraine diminish the demand for the Australian dollar.
• The RBA is less hawkish in its monetary policy decisions.
• Australia’s economic outlook seems gloomy.
• Australia is anticipated to face persistently high inflation and an aggressive cycle of interest rate hikes.
• Australia is aligning itself more closely with the USA, and sanctions against China are not viewed favourably.

The US dollar strengthens when:

• The Fed will hike rates further.
• The US has higher rates than other countries.
• Stagflation to take USD even higher.
• Hot CPI.
• The US at war means a stronger dollar.
• Outlook for Fed monetary policy is now more hawkish.
• Powell projects higher rates for longer.

Trading the AUD/USD with technical analysis

When it comes to trading AUD/USD using technical analysis, traders have a range of strategies to choose from based on their risk appetite, preferred timeframe, psychology and other factors. Here, we mention a couple of the most commonly used technical analysis tools.

Trends: Determine whether the market is in an uptrend, downtrend, or showing no clear trend. Traders often prefer to follow trends and avoid trading in narrow range-bound market conditions, as the risk-to-reward ratio may be less favourable. Some tools to identify trends include Simple Moving Average (SMA) lines and Bollinger Bands.

Simple Moving Averages (SMAs) and Bollinger Bands: SMAs calculate the average closing price over a specific trading period. In an uptrend, SMAs generally slope upwards, with shorter-term SMAs surpassing longer-term SMAs. Conversely, in a downtrend, SMAs show a downward slope.

Bollinger Bands: In an uptrend, AUD/USD tends to trade within the upper half of the Bollinger Bands indicator. If the price flips below the middle Bollinger Band and moves into the lower half, it may indicate a bearish trend reversal (and vice versa). These tools assist traders in identifying and confirming the prevailing trend in AUD/USD.

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Disclaimer:

This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced or hyperlinked, in this communication.