Australia is one of the most developed countries in the world. As such, its economy is a competitive one and a leader in the capitalistic world.
The currency is the Australian Dollar, or AUD, or Aussie, as it is sometimes called. For the Forex traders, the Aussie pair is the AUDUSD and it is, by far, the most popular one to trade.
Because it has the U.S. Dollar in its componence, the AUDUSD is a major pair. The U.S. Dollar’s world reserve status makes these currency pairs extremely important for the way the Forex dashboard moves.
Trading the AUDUSD pair is not a straight line. While it seems like any ordinary USD pair, this is not true, due to some special characteristics it has. I’m not talking about regular interest rate decisions and monetary policy the central bank sets, but some “specific” things related to the Australian Dollar/U.S. Dollar pair.
Things to Keep an Eye On
So, you’re wondering why this currency pair is different? There are many reasons for that.
It Pays a Carry
Yes, that is correct. Let’s define first what a carry is.
A carry trade, or a carry, is a positive swap. For those that don’t know, when holding a currency pair overnight (that is if you keep a position open for the next day), at midnight, the trading account is charged a swap.
Swaps are an interest rate differential. However, the differential is not the pure mathematical difference between the two interest rates. Its calculation is a bit more complicated than that.
What you should know is that swaps are either positive or negative. That means, at the end of the trading day, your account gets charged if the swap is negative, or you earn a small amount if the swap is positive.
A positive swap leads to a carry trade. Big players, like hedge funds and so on, use carry trades to earn a positive swap when the market is supposed to range.
For example, the NFP (Non-Farm Payroll) week is typically range bound until Wednesday when the news comes out. Until then, traders look for currency pairs that pay a carry to earn something until the range ends. The same is valid when holidays are ahead.
As you probably guessed, the AUDUSD pair pays a carry. Therefore, it has a so-called “natural tendency” to be bought in dips.
Gold, silver, and other metals, together with some commodities, influence the way the AUDUSD pair moves. Australian economy produces huge quantities and delivers them around the world.
If the price of gold, for example, is on the rise, the Aussie will be strongly supported on any dip. The opposite is true if gold sinks.
There are many factors that drive commodity prices up or down. The most important one is the disruption in the supply and demand chain.
This, it, in turn, will affect production levels and will influence the trade balance the country has. Moving forward, the economy will change and the central bank, in this case, the RBA (Reserve Bank of Australia) will address the issues next time its regulatory body meets.
Over thirty percent of Australian exports go to China. This is massive!
It creates a strong dependency on the state of the Chinese economy. If China’s economy is in a boom, it will ask for more goods from Australia, hence commodity prices will rise, and the Australian Dollar will rise as well.
On the other hand, a bit of a recession in China, and the Australian Dollar suffers.
The problem here is that Chinese economic data is not reliable. Moreover, it often comes on Wednesdays, when the Forex market is closed, causing gaps on the AUDUSD pair at the opening.
To sum up, besides the regular, monthly RBA meetings and statements, the AUDUSD pair depends on the factors listed above. In fact, because of the forward guiding principle, the pair doesn’t move that much on monetary policy announcements anymore as they tend to be priced in.
Instead, the focus shifts to other factors specifics to this currency pair. Factors we listed above.
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