Among the most interesting currency pairs to trade in Forex for individuals, the AUD/USD cross listing holds an important place. The currency pair is distinguished by its ability to be easily analysed by studying different very precise indicators
. To learn more about how to trade this pair and the indices to follow to predict trends, here are some practical explanations and some tips.
Australian and American events to take into account when trading AUD/USD:
To effectively trade the price of the AUD/USD currency pair, you must of course monitor both the events influencing the Australian economy and those influencing the American economy.
Regarding Australia, the following points should be tracked:
- The Chinese economy since Australia exports a large proportion of its production to China.
- The price of raw materials such as iron, gold, copper, palladium or platinum which are among the most important resources of the country.
- The PMI index which is divided into three main sectors namely construction, services and production. A Pmi index above 50 will show growth in the sector concerned and an index below 50, a recession in this sector.
- The country's GDP or Gross Domestic Product and employment figures are also good indicators.
- Finally, the various publications from the Australian Central Bank concerning its currency need to be monitored. The central bank generally communicates target values of this currency which are very widely used as a basis by investors.
Regarding the United States, the following events should be monitored:
- All economic releases from the country since it's the largest economy in the world.
- The figures and press releases concerning jobs, the non-agricultural wage bill or the IPC which reports inflation are also important elements. The Federal Reserve or Fed has a double mandate and it's it that takes care of these publications.
- The producer price index or PPI and its evolution over time.
- The Institute for Supply Management or ISM and its various press releases.
- The country's GDP or Gross Domestic Product which is published officially every quarter.
- Retail sales and durable goods orders.
- Finally, any decision by the Fed, particularly regarding the interest rate on the US dollar, will be of vital importance during your analyses.
By carefully studying the various press releases concerning Australia and the United States, you will be able to determine more precisely the most probable trends of the AUD/USD cross listing. But you still have to know how to interpret them.
Inflation or consumer price index data generally lead to rapid price movements immediately after their publication. So it's interesting to use these press releases to take a position on this currency pair. The Fed generally acts on the interest rate of the US dollar according to these publications.
Likewise, market volatility is important when the Australian Central Bank also intervenes in interest rates. The publications following the monthly meetings that are aimed at assessing the economic health of the country are of course also highly important. The country's inflation rate should be kept at around 2% as with all major economies. As a result, the CPI will have a direct influence on the price of the AUD/USD currency pair.
Continuing with the Australian economy, we know that retail sales are an index of choice when it comes to consumer spending and therefore the country's economic growth.
Finally, it's important to closely monitor the meetings of the FOMC or Federal Open Market Committee which take place every 6 weeks and allow for interesting economic projections. This of course also applies to press conferences which are held following these meetings and which generally affect the value of the US dollar considerably.
Some tips to set up a good trading strategy on the AUD/USD cross listing:
From a technical point of view, the AUD/USD cross listing is suitable for short, medium or long term trading strategies . You should of course adapt the analysis method and the type of chart to your investment horizon. Remember that online brokers provide you with diverse indicators that you can display directly and simultaneously on your stock market charts and which will allow you to refine your analysis. Finally, don't forget to compare the signals obtained with those of fundamental analysis through the data explained above.
What is AUD/USD?
AUD/USD is the exchange rate between the Australian Dollar and the American Dollar which here, is specified in the number of American Dollars for an Australian Dollar. Its price therefore equals the value of the Australian Dollar in US Dollars.
Although in France AUD/USD is a currency pair still little known, it still represents over 6% of all transactions on the foreign exchange market. AUD/USD is therefore the 4th most traded currency pair in the world, after the EUR/USD, the USD/JPY and the GBP/USD.
When surfing the internet and more specifically in the world of financial investment, the AUD/USD parity is called "Aussie". To understand its movements and developments, you simply need to know the factors that influence the prices of each of these two currencies.
Indicators to be monitored
There are many indicators that predict the AUD/USD rate.
First, the Australian Dollar is strongly associated with the New Zealand Dollar. The historical correlation is estimated to be nearly 96% for the AUD/USD and NZD/USD cross listings. This close correlation is due to the fact that the two countries have a rather important commercial partnership due to their geographic proximity.
Another important indicator regarding AUD/USD is the price of gold. The Australian Dollar is highly dependent on this price since Australia is one of the largest gold producers in the world. As a result, when gold prices rise, the Australian Dollar tends to reverse while conversely, when they drop, the price of the Australian Dollar also tends to drop. The correlation level between the Australian Dollar and gold is estimated to be around 87%.
Things to know
To trade AUD/USD, you should also know that this pair is rated with only two decimal places. Its exchange rate is called floating rate since it's governed by supply and demand phenomena on the foreign exchange market.
The bodies responsible for regulating inflation in these two countries and therefore their monetary policy, are the central banks, namely the Australian Central Bank and the Federal Reserve or Fed for the United States. While these two banks aren't in the habit of acting directly in the Forex, their decisions and various public communications need to be taken into account in order to detect future speculative movements.
Additionally, due to the strong correlation between gold prices and the Australian Dollar, the Australian Central Bank can at any time increase the value of its key rate in order to limit inflation in the country. In general, the Australian Central Bank committee ensures that the inflation rate never exceeds 3%.
Finally, notice that the interest rate on the Australian Dollar is very important and that because of this, some traders use it undertake carry-trading by borrowing the Yen to exchange it for the Australian Dollar. This is why the prices of the Japanese currency can also be influenced by the AUD/USD parity.