How To Trade AUD/USD
Trading A Currency Pair – AUDUSD
You may wonder why Chinese economy and not that of Australia. China has the second largest economy in the world and about a third of Australian exports go to China. Therefore, you expect that any monetary policy that China makes or any expansion or recession of Chinese economy will set the AUDUSD moving.
Also, looking at the commodities, Australia is a large producer of gold, iron, coal and other similar commodities. Therefore, any effect on the commodities results in a direct effect on the Australian economy. When the Australian economy is affected, then the Australian dollar also has to be affected.
When trading the AUDUSD, traders should note the following things out this currency pair:
- The ‘aussie’ is a very volatile currency pair. This is because it is dependent on very many pieces of data. This dictates the expiration that traders choose to use when trading.
- Traders should also keep a keen eye on the Chinese data such as the PMI, inflation, monetary policies and GDP, since the AUDUSD is largely affected by what goes on in the Chinese economy.
- Traders also ought to closely monitor the decisions of the Central Banks of Australia and United States. The Reserve Bank of Australia (RBA) hold meetings on a monthly basis and the Federal Reserve in the US hold meetings after every six months.
Important Economic Releases To Watch In Australia
Australia exports most of its products to China. Therefore, the Australian economy is very much dependent on what goes on in the Chinese economy. Also, since is a big producer of commodities like iron, gold, copper, palladium and platinum, its economy is also very much affected by what happens to the commodity prices. Therefore, traders should closely monitor these two things: Chinese economy and the prices of the commodities, since they affect the Australian economy and hence the Australian dollar thus having an impact on the AUDUSD currency pair.
In addition to the above, there is also the Purchasing Manager Index (PMI) releases in three parts for each sector: construction, services and manufacturing. If the PMI release is above the level of fifty, then it indicates a rise of the specific sector and if the release is below fifty, it shows a recession or drop in that specific sector.
The other releases that are of great importance are the Gross Domestic Product (GDP) and the Employment data.
Also, traders should carefully watch the intervention of the Central Bank when it comes to the Australian dollar. An example is the recent dovish statement that was made by the Central Bank Governor concerning the Australian dollar while also providing the appropriate target values. The financial markets are picking this values as a guarantee.
Important Economic Releases To Watch In United States
Any time a currency pair is associated with the United States, traders have to keep in mind that US has the largest economy in the world and therefore it almost every economic news releases coming out of the US is of high importance.
The Federal Reserve, which is the Central Bank of United States, have a dual mandate. Therefore, the information about jobs, that’s both the Non-Farm Payrolls and the CPI (Inflation) are of great importance to traders.
However, there are also other equally important economic news releases that have a great impact on the US economy. These include: Producer Price Index (PPI), Institute for Supply Management (ISM) both Manufacturing and Non-Manufacturing, ADP, GDP, which is released on a quarterly basis, Retail Sales and the Durable Goods Orders.
What To Expect From Economic Releases
After looking into the economic releases from both Australia and US which are likely to affect the AUDUSD, now lets look at what traders should expect from these releases.
Traders should brace themselves for a fast moving market especially when the Consumer Price Index (CPI), inflation, is being released. This is because this economic release makes the Central Bank to quickly act on the interest rates.
Also, traders should look forward to a very volatile market when the Reserve Bank of Australia (RBA) is making its interest rate decision and also during its meetings which it holds on a monthly basis so as to assess the situation of the Australian economy.
Just like any other large economy in the world, the RBA has a mandate of keeping the inflation level of the Australian economy at about 2%; but mainly below two percent. Therefore, traders should carefully watch the CPI, Inflation, since it comes from a very calculated move since the RBA must do all it can to meet its mandate.
Also, traders should look at the GDP.
Another thing is the Retail Sales which offer a clue on the Consumer strength since the spending of consumers is a great growth engine of an economy.
Also, the Federal Open Market Committee (FOMC) meets every six weeks to forward economic projections. It also holds press conferences after every two to three meetings. During these events, the United States dollar is greatly affected and therefore the AUDUSD is also affected as well.
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References and Further Reading:
- A multifactor model of gold industry stock returns: evidence from the Australian equity market (Robert Faff & Howard Chan)
- Intraday Patterns in FX Returns and Order Flow (FRANCIS BREEDON, ANGELO RANALDO)
- LINEAR RELATIONSHIP BETWEEN THE AUD/USD EXCHANGE RATE AND THE RESPECTIVE STOCK MARKET INDICES: A COMPUTATIONAL FINANCE PERSPECTIVE (Tasadduq Imam, Kevin Tickle, Abdullahi Ahmed, William Guo)
- Decomposing intraday dependence in currency markets: evidence from the AUD/USD spot market (Jonathan A. Battena, Craig A. Ellisc, Warren P. Hogan)
- Characteristic periodicities of collective behavior at the foreign exchange market (A.-H. SatoEmail authorJ. A. Hołyst)