Known in the forex market as the "Aussie", the currency pair of the Australian Dollar and the US Dollar is one of the most popular in the FX market today making up at least five percent of the whole forex market by volume.
In the AUD/USD pair, the Aussie dollar is the base currency, while the American dollar is the quote currency. This means the price of the AUD/USD pair is quoted as 1 AUD per quoted number of USD. For example, if the pair is trading at 0.80, it means it requires .80 US dollar to buy 1 Australian dollar.
Traders talking about trading this pair may mention a phrase like this:
"We bought the Aussie at 7655 and it rose 100 pips to 7755."
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History of the AUD/USD
After the Australian dollar replaced the pre-decimal Australian pound in 1966, it has become a popular currency pair for the US dollar. Following its pairing with the US dollar, the AUD/USD has become the fifth-most traded currency pair in the market today.
The Australian dollar became a "free-floating" currency in 1983, thus gaining interests among traders mainly due to a number of reasons such as government policy and Australia's rich supply of valuable commodities like iron, gold, coal, diamonds, wool and more.
Highly dependent on the movement of commodity prices thanks to Australia's reputation as a giant exporter of iron-ore and coal, this pair remains an attractive trading option because of the two countries' booming economies.
- The pair's volatility is typically lower compared to the most volatile currency pairs in the forex market today like the EUR/JPY, EUR/USD and the GBP/USD.
- The pair is more sensitive to economic events in Australia. Huge movements in the value of the AUD/USD usually happens during the hours of the Asia-Pacific trading session when reports concerning the AUD are published.
- AUD/USD is known to be correlated with prices of gold, iron ore and copper. Traders of this forex pair better keep a close eye on the metal exports from the land down under.
- Spikes in prices can be frequent at a range of 50-100 pips. However, such large price movements influenced by the Australian economic events and reports can be reversed after a few hours.
AUD/USD in a Nutshell
Other than negative economic news from Japan and the United States, other market factors includes the following:
- The pair is well-liked by forex traders and investors because of its liquidity and relatively appealing spreads as well as its close connection to worldwide economic trends.
- It always reacts smoothly to economic events and date, central bank policies and provides several trading opportunities.
- This AUD/USD is heavily influenced by Australia's reliance on raw materials exports and global commodity prices.
- It is tradeable 24 hours a day from Monday to Friday, therefore providing continuous trading opportunities with easy entry and exit strategy.
- The pair also have a narrow spread that reduces the cost of trading, giving it an additional edge for traders looking for a dependable currency pair.
Influencers of AUD/USD Trading
Key market influencers for the AUD/USD currency pair includes financial institutions, banks, retail traders, commodity trading, moneychangers and hedge funds.
Precious Metals and China
Two main things to watch closely when monitoring the price of the AUD/USD pair are the precious metals market and China.
Because Australia's economy produces large quantities of precious metals like gold, silver, iron and other main commodities, it only follows that the strength and the value of the Australian dollar would rely heavily on its export market of precious metals.
China on the other hand, plays the other integral role in influencing the Australian currency by simply covering more than thirty percent of Australia's export market. This forms a strong connection between Australia and China's economy. If China's economy is booming then expect more export goods to be bought from Australia, hence increasing commodity values and pulling the AUD upwards as well.
Trading AUD/USD via CFD
Contract-for-difference (CFD) is an agreement typically made between a broker and a trader or investor, where one party agrees to pay the difference in the price of a security, from the beginning and end of the trade.
Traders can opt to hold a long position by speculating that the value will go up or hold on a short position by speculating the value will decrease.
Trading on the AUD/USD pair via CFD, traders can speculate on the direction of the value of the currency pair. If you believe the Australian dollar will increase its value, then you may take settle on a long position by purchasing the CFDs. If you think otherwise—like the AUD losing value against the USD, then you may opt to take a short position putting the CFDs on sale.
Why Trade Currency Pairs in eToro?
eToro’s user-friendly interface and innovative trading platform permits traders to trade on their own time with zero transaction fees on currency trades. eToro also allow traders to trade for $30 for every $1 in their portfolio because it gives out a x30 leverage for currency pairs.
How to Trade AUD/USD Currency Pair on eToro?
- Login or create an account with eToro if you don't have one.
- Click "Discover".
- Select "Currencies".
- Choose "AUDUSD".
- Choose "BUY" or "SELL" depending on the how you wish to trade.
- Enter an amount or number of units you wish to trade.
- Set the stop loss, leverage, and take profit parameters.
- Click "Open Trade".
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