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AUDUSD Forex Pair Explained

Date Modified: 07/04/2024

Among the most popular currency pairs in the forex market is the AUD/USD, commonly referred to as ‘the Aussie’. The pair has unique characteristics due to the major influence of commodity prices on the Australian Dollar and the reserve currency status of the US Dollar.

an illustration of the AUDUSD pair

Main Points:

  • AUD/USD, also known as 'the Aussie’, is the fourth most liquid currency pair in the forex market, offering tight spreads and frequent trading opportunities
  • AUD/USD is an important currency pair due to Australia's commodity-driven economy, trading volume from major financial centers, and its status as a major global currency pair
  • Major events like the global financial crisis in 2008 and the COVID-19 pandemic in 2020 have caused a major decline in the value of the AUD/USD exchange rate
  • For informed trading decisions, it is important to understand how fluctuations in commodity prices and interest rates impact the value of the AUD/USD exchange rate

What Is AUD/USD Trading?

The exchange rate between both the Australian Dollar and the US Dollar is established by their currency symbols, AUD as the base currency and USD as the quote currency. Therefore, AUD/USD trading means speculating on the exchange rate fluctuations between the Australian Dollar versus the US dollar.

This exchange rate (the value of the AUD/USD) at any time, indicates the amount of USD required to purchase one AUD. For instance, if at any time, the AUD/USD pair is quoted at an exchange rate of 0.50, this means that 0.50 USD will be required to purchase 1.00 AUD.

History of AUD/USD Currency Pair

The history of the AUD/USD currency pair dates back to 1966 when Australia's monetary system had a significant revolution, moving away from the Australian pound to establish the Australian Dollar.

Initially, the value of the Australian Dollar was directly linked (or "pegged") to the British pound but in 1971, the peg was removed and shifted to the US Dollar. This change was crucial because it reoriented Australia's economic and financial relationships with the United States, reflecting changes in global trade and economic patterns.

In 1983, the Australian Dollar was set to a floating exchange rate system so that its value in the global financial markets is determined by the forces of supply and demand.

The value of the AUD increased relatively against the USD in the early 2000s, due to rising prices of Australia's major exports, including iron ore, coal, gold, and oil. In addition, China's rapid industrialization and urbanization during this period contributed to increased demand for Australian exports consequently benefiting the AUD.

The global financial crisis of 2008 had a profound impact on the whole financial markets, including the AUD/USD exchange rate. As the crisis unfolded, investors globally sought safety in safe-haven assets denominated in US Dollars like Gold, causing the US Dollar to appreciate against the Australian Dollar.

In 2015, the AUD/USD pair experienced another significant downturn, primarily due to a decline in global commodity prices. Such was the extent of this decline that the AUD value fell substantially, nearing parity with the New Zealand Dollar (NZD) for the first time in four decades.

A significant downturn was experienced again during the COVID-19 pandemic of 2020, with the AUD dropping by more than 17% in just two weeks, once again matching parity with the New Zealand Dollar. Despite the severe effects, a rebound in commodity prices benefited the Australian Dollar, propelling the AUD/USD exchange rate close to peak levels of its previous years.

What Are AUDUSD Trading Hours?

You have the option to engage in trading activities involving AUDUSD Contracts for Difference (CFDs) and track real-time fluctuations in prices using the Plus500 WebTrader platform. AUDUSD trading is accessible on the trading platform continuously from Sunday at 22:00 CET until Friday at 22:00 CET, without interruptions.

*Please note that trading platform hours depend on the individual operator.

Why Is the AUDUSD an Important Forex Pair?

The AUD/USD currency pair holds significance for traders for several reasons:

Market Dynamics: The Australian Dollar is categorized as a commodity currency, reflecting Australia's abundant natural resources. Conversely, the US Dollar serves as the world's primary reserve currency and a safe-haven.

Trading Volume: AUD/USD experiences significant trading volume because Sydney, the financial center of Australia, and New York, the financial center of the United States, are both major financial hubs in the world.

Major Currency Pair: AUDUSD is classified as a major currency pair in the forex market. As of February 2024, data shows that is the fourth most-traded currency pair in the global financial market.

Global Forex Turnover: According to data from the Bank for International Settlements for 2023, AUDUSD accounts for a significant portion of the world's forex turnover, specifically 6.37%.

Trading AUDUSD carries the inherent risk of financial loss, so traders must be aware of the various market factors that can impact the fluctuations of this currency pair. Being cognizant of these factors allows traders to make informed decisions and employ risk management effectively while engaging in AUDUSD trading.

What Are the Economic Factors Affecting the AUD/USD?

Keeping abreast of economic factors that affect both the Australian and US economies is essential to speculating on the price movements of the AUDUSD currency pair. This requires a thorough analysis of diverse economic indicators, including:

Central Bank Policies
The Reserve Bank of Australia (RBA) is the central Bank of Australia; its board members meet eleven times a year to decide on monetary policies and interest rate decisions. In contrast, the US Fed Reserve releases interest rates 8 times a year as well as an accompanying rate statement that provides clues on future rate decisions. Reports from both central banks play crucial roles in shaping the price movement of the AUDUSD currency pair.

Interest Rate Differential
The difference in the interest rates established by the US Fed Reserve and the Reserve Bank of Australia is a fundamental factor impacting the direction of the AUDUSD currency pair. This variance in interest rates might lead investors to favor the US Dollar or US dollar-denominated assets for higher potential returns, consequently strengthening the US dollar against the Australian dollar and exerting downward pressure on the AUDUSD exchange rate.

Commodity Prices
In addition to iron ore, wheat, and gold, Australia is also a major exporter of natural gas and livestock products like live cattle, feeder cattle, and meats. The economic indicators that influence the supply and demand of these commodities can impact market perceptions of Australia's economic health and the value of the Australian dollar. The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) is a valuable resource for studying the data changes regarding the supply and demand of Australian commodities.

Economic Reports and Indicators
The statistical agency for the Australian economy is the ABS (Australian Bureau of Statistics), and in the United States, it is the US Bureau of Labor Statistics. Both agencies play a crucial role in providing economic data releases that are essential for understanding the state of their respective economies. These releases cover notable reports like Non-Farm Payrolls (NFP) and Federal Open Market Committee (FOMC) reports in the US. Similarly, in Australia, releases from the ABS, such as inflation and employment data, affect the value of the Australian dollar and the US dollar.

Geopolitics & Chinese Economy
Geopolitical events, economic development, and uncertainties in the US, the Asian Pacific region, and Australia’s key trading partner countries have the potential to impact the AUD/USD exchange rate.

Australia's economic ties with Asia, particularly with countries like China and Japan, make it susceptible to developments in their markets. For example, the remarkable growth of the Chinese economy in the early 2000s resulted in a period of strength for the Australian dollar. However, events like China's implementation of a zero-Covid policy and subsequent decrease in demand for Australian commodities contributed to the decline in the AUD/USD exchange rate.

Through careful observation and analysis of these factors, traders can glean valuable insights into the fundamental drivers shaping the AUD/USD exchange rate, enabling them to make decisions based on well-grounded assessments.

Why Trade AUDUSD CFDs with Plus500

  • Risk-Free Demo Account: Traders have access to a free and unlimited Demo account allowing them to practice trading AUD/USD CFDs without risking real capital.
  • Cutting Edge Trading Platform: The Plus500 WebTrader is a trading platform that enables you to trade AUD/USD CFDs comfortably on desktop, iOS, and Android devices, anywhere and anytime.
  • Advanced Trading Tools: Traders have access to advanced charts, technical indicators, sentiment tools, trading alerts, and economic calendars on Plus500 WebTrader, facilitating informed trading decisions based on AUDUSD price movements.
  • Competitive Spread: Plus500 ensures competitive pricing by offering tight spreads when trading the AUDUSD. However, traders should be aware that other fees may apply.
  • Leverage: Traders should bear in mind that while leverage can increase potential gains, it carries the inherent risk of amplifying losses.
  • Access of Funds: With Plus500, traders can access their trading capital at any time, with ease, through a secure withdrawal process.
  • Safety of Funds:Traders’ funds are kept in segregated bank accounts, complying with regulatory requirements, ensuring the safety of funds.

Conclusion

Trading the AUD/USD currency pair offers a unique opportunity to engage with one of the most commodity-driven financial instruments in the forex market. This article explained several aspects of AUDUSD trading including the basics of trading AUDUSD, its importance, and the economic indicators that affect its price movement.

As you begin or continue trading the AUD/USD FX pair, it's crucial to prioritize risk management and remain abreast of global economic developments affecting both the Australian Dollar and the US Dollar.

To further explore how to trade this currency pair, see our article: “AUD/USD Forex Pair Trading Guide and Strategies”.

FAQs

What Is AUD/USD Trading?

AUD/USD is good for traders because of its high liquidity and frequent trading opportunities but it requires good risk management due to volatility, and event-driven price swings.

How Can I Manage Risks When Trading AUD/USD?

You can manage risk in AUD/USD trading by aiming for a good risk-to-reward ratio, utilizing stop-loss orders and the right position size on every trade.

What Trading Session Can You Buy and Sell AUDUSD?

Traders have the option to buy or sell the AUD/USD currency pair in any of the major trading sessions such as Sydney, Asia, London, or New York trading sessions.

Which Commodities Have the Biggest Impact on the AUD/USD?

Primarily, commodities like iron ore, coal, and gold influence the AUD/USD pair because Australia is a major exporter of these commodities. Changes in their prices can affect Australia's economy and currency.

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