AUD/USD: Trends, Factors & Market Impact

The Australian and U.S. dollar currency pair or cross, is commonly referred to as AUD/USD, sometimes written as AUDUSD. As of 2022, the AUD/USD is the fifth most traded currency.

The AUD was given free circulation in 1983. There are many geological, geographic, and political elements that make it attractive to traders. Australia is among the world’s richest countries in terms of natural resources, including coal, diamonds, metals, meat, and wool.

Understanding the AUD/USD pair

AUD/USD is one of the most traded currency pairs globally. Trading this pair is sometimes referred to as trading the “Aussie.”

By examining a currency pair, the trader can determine how much of one currency is needed to purchase one unit of another.

In this case, the US dollar (USD) is the quote currency, representing the price quote. The Australian dollar (AUD) is the base currency.

The acronym AUD/USD refers to a rate-price quote that provides the option to convert U.S. dollars. The AUD/USD pair’s value is expressed as one Australian dollar for every specified number of US dollars. If the pair is trading at 0.75, for instance, it means that one Australian dollar is worth 0.75 US dollars.

A number of factors impact the value of the Australian dollar and/or the U.S. dollar in relation to other currencies and each other, which in turn affects the AUD/USD exchange rate.

This includes political factors like the business climate in China, a significant consumer of Australian commodities, geographical factors like Australia’s production of commodities (coal, iron ore, and copper), and interest rate influences.

Since the AUD/USD is quoted in U.S. dollars, the USD/CAD, USD/CHF, and USD/JPY pairs do not have a negative correlation with it. The positive correlation between the resource-dependent economies of Australia and Canada may also be the cause of the USD/CAD correlation.

The AUD/USD exchange rate & the Australian economy

Interest rate differences influence the value of these currencies relative to each other. These differences stem from the Federal Reserve (Fed) and the Reserve Bank of Australia (RBA). For instance, the value of the AUD/USD pair may rise when the Fed interferes in open market operations to devalue the US dollar.

This occurs as a result of the Fed’s actions, which increase the amount of US dollars in circulation and push the currency’s price lower by putting more dollars into bank accounts.

The Australian dollar will maintain its value if nothing else changes, and the pair’s relative value rises as a result of the Australian dollar’s strengthening relative to the US dollar.

The Australian dollar will maintain its value if nothing else changes, and the pair’s relative value rises as a result of the Australian dollar’s strengthening relative to the US dollar.

Australia is the world’s largest exporter of iron ore and the second-largest exporter of coal, so commodity prices have a significant impact on the value of its currency. Oil prices fell to decade-low levels during the 2015 commodity slump, and the prices of coal and iron ore also fell.

The Australian dollar declined precipitously, as was to be expected. It dropped over 15% versus the US dollar and almost reached parity with the New Zealand dollar, which hasn’t happened since the 1970s.

AUD/USD weakens as bearish pressure builds

With the price steadily dropping towards the end of January, the AUD/USD exchange rate continues to be bearish. Stochastic indicators showing waning bullish momentum strengthen expectations for a decline toward the primary target at 0.6130.

The pair continues to support the downward trend by staying below the EMA50. A break above 0.6255, however, might result in short-term gains and possibly a test of 0.6322 before the decline resumes.

Tariffs, weak data & rate cut fears weigh on AUD

At first, there was some support for the Australian dollar due to conjecture regarding a more lenient approach to tariffs with China. However, China’s poor economic data impacted sentiment, causing the momentum to wane.

Furthermore, the emergence of DeepSeek, a new AI model from China, has raised concerns about US tech dominance and stock market valuations, leading to increased risk aversion.

The emphasis now turns to Australia’s next inflation report. The Reserve Bank of Australia will heavily base its next action on the consumer price index for the fourth quarter.

An interest rate cut in February is more likely if the reading is weaker than anticipated, which would put additional pressure on the AUD/USD exchange rate.

AUD/USD weighed down by USD and China

The performance of the Australian dollar continues. Both internal and external factors influence it. Due to market confidence and a stable policy stance, the US dollar keeps getting stronger, making it challenging for the Australian dollar to catch up.

The economic issues in China are making matters worse, as weak business data suggests a slowdown in activity. The strong link between Australia’s economy and Chinese demand has raised concerns about future growth, which has kept the currency under pressure.

Domestically, lower inflation data has stoked expectation that the Reserve Bank of Australia may lower interest rates. This change in expectations has further contributed to the Australian dollar’s decline by making it less appealing to investors.

Global commodity markets, meanwhile, are not offering any assistance. Australian exports, especially metals, are not in high demand, which has limited the currency’s upside potential.

Given these variables, the AUD/USD exchange rate is still susceptible. The pair may continue to face downside risks unless sentiment changes or outside circumstances improve.

What makes the AUD/USD market significant?

Volatility - (波动率)

The Australian to US dollar (AUD/USD) pairing is a well-liked forex pair that accounts for about 5% of the total volume of the foreign exchange market.

The AUD/USD pair stands out for its consistent volatility across all trading sessions, making it a popular choice among traders. In fact, the difference in interest rates between the two currencies frequently results in high volumes and volatility for traders.

Although there is little volatility in the forex market during the Asian trading session, the AUD-USD spikes and remains active during that time.

Correlations

The AUD/USD currency pair is negatively correlated with the USD/CAD pair. Positively correlated with gold and the NZD/USD pair.

Whereas a negative correlation suggests that the assets will typically move in opposite directions, a positive correlation indicates that both assets will typically mirror each other’s price action.

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