What is AUD/USD?
Known in the forex world as the “Aussie,” the AUD/USD is the forex currency pair that represents the exchange rate between the Australian dollar (AUD) and the United States dollar (USD).
As with all pairs that include the US dollar, the AUD/USD is one of the major currency pairs that has high liquidity and is commonly traded in foreign exchange markets.
The exchange rate indicates how much of the quote currency (USD) is needed to purchase one unit of the base currency (AUD). For example, if the AUD/USD exchange rate is 0.66, it means that one Australian dollar is equivalent to 0.66 US dollars.
AUD/USD historical performance
The Australian dollar has always been volatile since it has a strong association with commodities and is considered a risky currency. The AUD/USD rose in the early 2000s, owing to a surge in commodity prices and a fast-expanding Chinese economy (Australia's largest trading partner). The party ended in 2008 when the world was hit by a major global recession. AUD/USD plunged from 0.98 to 0.60 in just a few months.
The Australian dollar began to recover immediately after that, but the rally peaked in 2012 as fears about the global economy began to resurface. Since then, the AUD/USD has been in a steady downtrend with only occasional spikes. The main reason for the Australian dollar's collapse throughout the 2010s was the fall in interest rates, which reached rock bottom in 2020 when the coronavirus epidemic broke out.
What affects the price of the AUD/USD pair?
Like any other currency pair, the exchange rate of AUD/USD could be influenced by a variety of financial and geopolitical factors. It is important to note, however, that the forex market is complex, and it is, therefore, advisable to analyse multiple factors and monitor ongoing developments to gain a comprehensive understanding of the AUD/USD price dynamics.
- Monetary policy decisions: Changes in interest rates, quantitative easing programs, or forward guidance from the central banks in the US and Australia can affect investor expectations and currency valuations. Interest rate differentials between the two countries can affect the AUD/USD exchange rate. Higher interest rates in Australia compared to the US may attract foreign investors seeking better returns, leading to an appreciation of the Australian dollar against the US dollar.
- Political factors: Major political events like presidential elections, new government policies, and geopolitical tensions can also influence the AUD/USD currency market, create volatility, and impact the exchange rate.
- Economic indicators: Various economic indicators such as Gross Domestic Product (GDP) growth, inflation rates, employment data, trade balance, and consumer sentiment can impact currency prices. Positive economic indicators in Australia relative to the US may strengthen the AUD, and vice versa.
- Commodity prices: Australia is a major exporter of commodities, including iron ore, coal, and gold. Changes in commodity prices can have an impact on the Australian dollar, as they affect the country's export revenues and terms of trade.
- Risk sentiment: The AUD/USD exchange rate is susceptible to changes in global risk sentiment. In times of economic uncertainty or market volatility, investors may seek safe-haven assets such as the US dollar, leading to a strengthening of the USD against the AUD. Conversely, when risk appetite is high, investors could be more inclined to invest in higher-yielding assets, potentially boosting the Australian dollar.
What to watch out for when trading AUD/USD?
When trading the AUDUSD forex pair (Australian dollar against the US dollar), there are several key financial institutions and financial events to watch out for.
- The US Federal Reserve (known as “the Fed”), can influence the price of the US dollar through various announcements and financial decisions. Those include raising or lowering interest rates, buying or selling US government bonds, quantitative easing, and forward guidance
- The Reserve Bank of Australia’s (RBA) monetary policy decisions, such as the Interest Rate decisions aim to tackle inflation
- Consumer Price Index (CPI) Rate in the United States and Australia
- US Non-Farm Payrolls, measuring the number of workers in the US
- Australia’s Employment data
- GDP growth data in the US and Australia
- Chinese economic data affecting the AUD
