Type : Currency | Group: Majors | Base: Australian Dollar | Quote : US Dollar
The Australian dollar U.S. dollar (AUD USD) is a currency pairing whereby the Australian dollar and the U.S. dollar can be traded against each other. The AUD USD can be thought of as the Aussie dollar versus the American dollar – when you short one, you are long the other and vice versa. The AUD USD is usually numbered among the ten most widely traded currency pairs. The AUD USD may also be written as AUD/USD.
Much like the USD CAD, the AUD USD is often used as a commodity play. Australia has a robust mining sector and significant mineral resources that the country is developing. The U.S. also has mineral resources, but its economy is less resource focussed than Australia. The Reserve Bank of Australia is charged with watching over the AUD, just as the Federal Reserve watches over the USD.
AUD/USD is classified as one of the majors and is known as a commodity currency because of its resource-driven economy.
The AUD/USD currency pair is often referred to as Aussie or Ozzie. The nickname is short for Australian and is commonly used to refer to Australian citizens as well. The nickname is used among cross rates also. As an example, EUR/AUD is commonly referred to as Euro Aussie. A less common nickname for the currency is Matie.
Because Australia is rich in natural resources, and its economy relies on the export of such products, the currency pair is sensitive to the underlying asset prices. Australia is known to export wheat, wool, iron ore, gold, natural gas, coal, and copper.
Correlation with these products is common, although during certain periods it will be natural for divergences to occur. Gold has had a long-standing correlation with the Aussie, and at times there is a delayed effect, the AUD/USD pair will follow as much as a few weeks after a strong fluctuation in the precious metal. The fluctuation in the precious metal will tend to take time to filter into Australian economic statistics. Copper has been known to move the currency pair, and often traders will watch critical areas in copper prices to determine a directional bias in the Aussie.
The pair tends to correlate with other commodity currencies including the New Zealand Dollar and Canadian dollar because of the similarity in their economies.
When Does AUD/USD Experience Volatility
While all majors tend to experience the highest level of volatility during the North American and European overlap, AUD/USD tends to have fairly consistent volatility in all sessions. Economic releases from Australia are released during the Asian session, which tends to be quiet for other currency pairs. The European and North American sessions drive volatility as a result of the US Dollar, risk sentiment, as well as correlations.
Who Trades the AUD/USD?
AUD/USD is popular among those looking to place trades outside of common trading sessions. The volatility in the pair in the early Asian session makes it popular among North American traders that are looking to trade outside regular business hours, as well as Asian traders. The pair is also popular among traders that look to take advantage of correlations as well as divergences in correlations, or arbitrage opportunities.
What Factors Affect AUD/USD?
Commodity currencies are driven in a distinct manner in comparison to other major currency pairs. The higher interest rate offered in Australia draws appeal for carry trades and yield seekers. During a period of risk appetite, traders position in resource-driven economies such as the Aussie, for the interest rate differential. Because it is known that traders will position in commodity currencies during such times, the pair tends to get sold aggressively on sentiment changes.
Correlations with asset prices of natural resources also have a big impact on the currency pair, when natural resources decline in price, the Australian economy suffers as the economy relies on exports. Often the Reserve Bank of Australia will try and intervene during such times by manipulating its currency. A lower exchange rate for the Aussie can somewhat compensate for lower asset prices of natural resources. Information regarding the central bank, as well as monetary policy statements and press releases, can be found at http://www.rba.gov.au/. Information regarding the US central bank can be found at the Federal Reserve website at https://www.federalreserve.gov/.
About Australian Dollar
The Australian dollar is the official currency of Australia. The Australian dollar is considered to be one of the major currencies and is paired with all the other major currencies, including the U.S. dollar (USD), Japanese yen (JPY), Swiss franc (CHF), euro (EUR), pound sterling (GBP) and Canadian dollar (CAD).
The Australian dollar is also referred to as the Aussie.
The Australian dollar is a very stable currency with a history that is refreshingly free off large scale government interventions into the currency market. The AUD is considered to be one of the commodity currencies because a large percentage of Australia’s economy is based off of the nation’s vast mineral deposits and mining activities.
About US Dollar
The USD is integral to world trade in that it belongs to the world’s largest economy and acts as the world reserve currency. Because of this unique situation, many of the standard economic rules do not seem to apply to the USD.
The U.S. government has had long periods of fiscal irresponsibility and yet the USD has not always suffered during inflationary times that would damage any other currency. This is because, as the world’s largest economy, the USD is considered a safe haven currency in times of global uncertainty. However, this rule doesn’t always hold, and the U.S. dollar does eventually pay for periods of prolonged inflation and trade deficits – it just seems to enjoy a much longer lag before any market reaction takes place.
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