How to Invest in AUD/USD: Best Forex Strategies

The AUD/USD currency pair in forex belongs to the majors category. However, novice traders often sleep on it preferring the classic EUR/USD or the British pound and the Japanese yen. One of the reasons is the news background. The media actively discusses the news of the American and European markets, while there is little information about Australia. The country barely participates in world geopolitical events, and precisely because of this the Australian dollar is relatively easy to predict. In this review, you will get acquainted with the specific features of trading the AUDUSD: you will learn what factors affect the exchange rate, what the advantages of trading the Australian dollar are, how best to trade the pair on the forex market and what strategies are best suited for it.

The article covers the following subjects:

The AUD/USD Pair Overview

Since 2000, the national currency of Australia has been strengthening against the US dollar slowly but surely. By 2008, the value of the Australian dollar was almost 1:1. But the global crisis of 2008 hit the Australian economy much harder and the national currency depreciated almost 2 times against the USD.

Parity was restored eventually and in June-July 2011 one AUD was worth 1.1 USD. But the Aussie did not last long at the peak: by the end of 2013, the AUD fell below the USD, after which it began a long downward movement with fairly deep upward corrections. In March 2020, a historical 20-year low was updated amid the problems in the Australian economy due to the pandemic and natural disasters.

Advantages of the AUD/USD currency pair:

  • Predictable rate. Compared to other major pairs, the AUD/USD has few influencing factors. Basically, this is the demand for raw materials in the world market and the policy of the Central Bank. The price chart has pronounced resistance and support levels and the patterns are clearly visible.

  • The country’s location. Australia’s remoteness from other continents plays into the country’s hands. Although the country is involved in world trade, it is barely affected by geopolitical conflicts and global crises. The US, China, Europe, the countries of the Middle East, and Russia are involved in trade wars. Any economic disputes between these regions have a strong impact on national currencies in the short term. Australia does not participate in political conflicts, territorial disputes, or trade wars. Therefore, the Australian dollar is not subject to sudden movements.

  • No speculative factor. Speculators prefer currency pairs that show high volatility in the short term. For example, the EUR/USD. The Australian currency is better suited for medium and long-term investment, therefore it is less subject to the influence of market makers.

  • Plenty of available information for analysis. There is a lot of information in open sources for analyzing the state of the US and Australian economies. Most forex brokers have separate reviews on the AUD/USD in their analytical materials

     

Many beginners choose to start trading the EUR/USD on forex. This is partly justified as this pair reacts sharply to the news and allows traders to make money within the day. The AUD/USD has a more stable movement, so it is better suited for long-term trading strategies.

Latest Trends

Over the past few years, the AUD/USD rate has been under strong pressure from external fundamental factors that primarily affect the weakening and strengthening of the USD:

  • Pandemic. At the start of 2020, the world was facing one of the biggest threats of the last decade. The disruption of supply chains, trade relations, and the decline in global consumption primarily hit the US economy. Australia is a country less dependent on international trade. Therefore, when the USD weakened, the AUD/USD rate went up. As the threat of the pandemic subsided and optimism returned, the rate stopped rising.

  • US domestic politics. The policy of quantitative easing led to the avoidance of deflation and allowed the Fed to abruptly raise the interest rate in 2022. This increased the attractiveness of the USD in the eyes of investors and the strengthening of the US dollar automatically lowered the rate of the AUD/USD pair.

  • Raw material prices. The US is one of the largest consumers and suppliers of oil. The Australian economy however is more dependent on the export of gold and agricultural products. Due to geopolitical conflicts, energy prices have been going up lately, while gold is getting cheaper. This puts pressure on the AUD/USD rate, which has been gradually going down over the past few months.

Both countries have their own motives for strengthening or weakening the national currency. A strong currency is disadvantageous for exporters, but a weak exchange rate also has its drawbacks. The AUD/USD chart is almost in the middle between its ten-year highs and lows and moves cyclically.

 

Factors Moving the Australian Dollar / US Dollar Currency Pair

Australia is a relatively calm country from a geopolitical and economic point of view, so the AUD/USD currency pair does not experience sudden price spikes. Since the country’s leading sectors of the economy are the materials sector and the services sector, the exchange rate of the Australian currency largely depends on the global supply and demand for raw materials and fundamental factors.

The main factors affecting the AUD/USD rate:

  • Macroeconomic statistics of the US and Australia. GDP, inflation rate, interest rate, balance of payments, etc.

  • Microeconomic statistics of the US and Australia. The financial performance of individual leading companies in export industries may have a slight impact.

  • The geopolitical situation that determines consumer and industrial demand for exported raw materials. This also indirectly includes the state of the economies of trading partners. For example, for Australia it’s Japan and China.

  • Force Majeure. For Australia, these can be climatic and weather changes that adversely affect the production of raw materials. For example, the large-scale fires of 2019-2020 led to the drawdown of the Australian dollar.

Economic calendar is useful to stay on top of things and follow the news of Australia and the US. News from Europe can indirectly affect the rate, but their influence is weak.

Best Time to Day Trade AUD/USD

The optimal time for trading on forex is the opening of the London and American sessions. This is when you get the largest trading volumes and volatility. These are intervals from 07.00 to 08.00 and from 12.00 to 15.00 GMT.

Please note that the specified time is GMT. Calculate your time based on the time zone of your location. The second point: these periods are indicative and do not take into account seasonal time savings. Actual volatility can depend on any fundamental factors.

AUDUSD Technical Analysis

All types of technical analysis can be used for the pair:

  • Wave analysis. The cyclical nature of the chart in the long term allows you to highlight individual price waves with visible highs and lows.

  • Trend analysis. Classic technical analysis with trend indicators and confirming oscillators. You can also use channel indicators.

  • Graphical analysis. The chart clearly shows resistance and support levels. Breakout trading systems can be built using trend lines, and pivot points can be determined by patterns.

  • VSA. These are tools that allow you to evaluate changes in trading volumes. With their help, you can find areas where there will be an increase in volatility under the influence of large capital.

     

Try to combine tools from different groups and fine-tune your trading strategy in the tester on a demo account.

Currency Pair Characteristics

The AUD/USD is a major currency pair, so it is often compared with currency pairs from the same category. The main characteristics for comparative analysis are spread and swap levels, liquidity, volatility and correlation with other currency pairs.

Typical spread

The pair’s spread is one of the narrowest, only second to the EUR/USD and USD/JPY pairs. This is partly due to the fact that this pair is favoured among professional traders: large trading volumes provide a tighter spread.

The swap for long and short positions is negative, so the carry trade strategy does not work on this pair. For short positions, the swap is smaller.

Performance of the currency pair

It is difficult to compare the liquidity of majors since all of them are assets with high liquidity, which is confirmed, among other things, by a narrow spread and no slippage.

AUD/USD pair correlation

The AUD/USD chart shows the most noticeable correlation with the NZD/USD chart. The positive correlation is due to the fact that Australia and New Zealand are located next to each other and have a similar economic structure. In both charts, in most cases, the direction of price movement coincides with the depth of the fluctuations. On a long-term interval, the level of volatility of both pairs is almost the same.

AUD/USD five-year chart:

NZD/USD five-year chart:

The AUD/USD also correlates with the AUD/CAD pair, which is due to the fact that the currencies of Australia and Canada are commodity currencies. But the AUD/USD has a smoother appearance, while the AUD/CAD has sharp swings.

Some forex sources mention the correlation of the AUD/USD with the gold chart. There is indeed a slight similarity: both assets often have the same direction of movement, but the similarity ends there. The AUD is a currency, gold is a metal and a safe-haven asset. They have different influencing factors that determine the volatility and duration of the trend.

The best tool to track correlation is the calculator. For better objectivity, set the largest possible comparison period in the settings.

According to the calculator, the AUD/USD has the highest correlation with the AUD/CAD, NZD/USD, and silver.

 

Volatility

The AUD/USD pair has higher volatility in the long run. This means that on the daily timeframes, the price chart has pronounced high waves, which are weakly expressed in the short term. Below are tables with volatility values ​​for different timeframes.

Volatility for the last week:

Volatility for the last 10 weeks:

Volatility for the last 40 weeks:

These tables show that the AUD/USD volatility is one of the highest among the major currency pairs. But while in the long term the AUD/USD volatility is higher than the volatility of the classic EUR/USD pair, in the short term the Aussie is less volatile.

In terms of days of the week, volatility is evenly distributed; intraday volatility increases during the opening of the American session.

AUD/USD forex Trading Strategies

1. News trading. One of the forex trading strategies, which involves looking for entry points at the time of strong news that will set a long-term trend.

News that affects the course:

  • Macroeconomic statistics. This applies to both Australia and the US. Moreover, it is important to compare all fundamental news at the moment. For example, if the Reserve Bank of Australia raises the interest rate, this does not guarantee an increase in the exchange rate, since there may be stronger news from the US that affects the USD growth. You also need to compare actual performance with the forecast.

  • Weather force majeure. Australia’s economy is highly dependent on weather conditions, which affect the country’s export opportunities. Hurricanes, floods, forest fires, etc. — all this affects the exchange rate and allows you to earn on short positions in the short term.

2. Trend trading. The main forex trend indicators are moving averages, the Alligator. Confirmatory indicators are CCI, RSI, On Balance Volume. Strategies are built on the idea of ​​looking for a strong trend and opening a trade at the moment of its reversal.

3. Channel strategies. Trading inside the channel on a timeframe from H4. Good examples of channel indicators are Keltner Channel and Donchian Channel.

Key Takeaways

What you need to know about trading the AUD/USD currency pair:

  • The pair shows less intraday volatility compared to the EUR/USD and more volatility on weekly intervals.

  • Advantages of the pair: relatively easy to predict, smooth long-term trends, relatively low dependence on geopolitical disputes.

  • The main factors influencing quotes are the actions of the US and Australian Central Banks, macroeconomic statistics on GDP, inflation, balance of payments, etc., as well as weather factors in Australia.

  • Basic trading strategies: intraday trading based on fundamental analysis, long-term trend strategies. Scalping and swing trading are not recommended.

     

Price chart of AUDUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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