Among the currency pairs that can be traded in the foreign exchange market, the AUD/USD, which represents the exchange rate of the Australian dollar and the US dollar, is one of the most popular. But what does this exchange rate really represent and more importantly, how can you make good analysis of its price before taking bullish or bearish positions? This is what we propose you to discover through this article dedicated to this cross.
First of all, let's remember that this currency pair is a particularly volatile cross that is influenced by many elements and events. All of these events that you can find on the economic calendar are generally used as expiration points by traders around the world and should therefore also be used to place your stop orders.
As we have seen above, it is not only Australian and US economic data that should be taken into account when doing fundamental analysis of the AUD/USD cross, but also data on the Chinese economy which, remember, directly influences the health of the Australian economy.
Finally, the publications to watch out for are those of the two major central banks of Australia and the United States. As far as their calendar is concerned, the Fed meets every 6 months and this meeting is an excellent entry point into the market and the Australian RBA meets once a month with of course also an important influence on the FX market.
First of all, let's take a moment to better understand what the AUD/USD currency pair represents. This currency cross is the Australian dollar to US dollar exchange rate. This means that this cross represents the rate of the Australian dollar against the US dollar and therefore the exchange rate between these two currencies.
So if the AUD/USD cross shows a price of 0.6810, it means that one Australian dollar costs 0.6811 US dollars to buy. Here the base currency, which is on the left, is the Australian dollar while the counter currency, on the right, is the US dollar.
Unlike some of the other currency pairs such as EUR/USD and GBP/USD which also have the US dollar as a counterparty currency, AUD/USD is not one of the major currency pairs in the foreign exchange market but is still popular with many traders who are interested in the Australian and US economies and their relationship.
Like all other currency pairs, it is on the Forex or foreign exchange market that this AUD/USD cross is quoted. But of course, the trading hours for this currency pair are during the hours that the US and Australian markets are open. Here are the details.
The American session takes place from 3.30 pm to 10 pm (Paris time) and the Australian session takes place from 1 am to 7 am (Paris time).
Note that the traditional hours of the US stock market session include the second part of the European session at the beginning. This means that volatility is particularly high because of the presence of both American and European investors. Trading volumes are high.
As for the opening hours of the Australian session, which takes place during the night in French time, they are the same as those of the Japanese stock exchange in Tokyo, which is an important Asian stock exchange. Here again, the market volatility at these times can be significant.
Of course, you can also take a position on this currency pair outside of these hours, but in this case you must pay attention to the risks of opening gaps.
As you may already know, there are several elements that will influence the demand or supply of the Australian dollar or the US dollar, and therefore influence the price of the AUD/USD currency pair.
As for other currency pairs, this concerns in particular the central banks whose meetings and other communications are scheduled on the economic calendar. Here, we will follow with interest the publications of the Federal Reserve for the US currency and the RBZ or Reserve Bank of Australia for the Australian dollar.
These two central banks can indeed act on the attractiveness of their currency by manipulating their interest rates. The publication of these rates is therefore a very closely watched event by investors on the foreign exchange market. Indeed, we know that for the United States as for Australia, these rate changes are often followed by a press conference that gives more details on the monetary policies conducted by these two countries and their interest.
There are other elements to consider as well, as we showed you in our section on fundamental analysis. It is important to understand that the exchange rate between the Australian dollar and the US dollar depends on the value that each of these two currencies will gain or lose. This demand can be influenced by economic factors because it is primarily in the context of international trade or banking that these currencies are exchanged.
It will then be necessary to understand how a rise in the dollar may or may not lead to a fall in the Australian dollar and vice versa, because here, several elements must be taken into consideration.
Another type of analysis, complementary to the fundamental analysis is of course the technical analysis of the AUD/USD. This analysis is based on a study of the charts and the current and historical movements of this cross.
Also known as "chartist analysis", this technical analysis tends to detect price patterns that may indicate upward or downward movements in this currency pair. More concretely, analysts use technical indicators that reflect the volatility of the market or the strength of a trend and its direction.
The main indicators that are used here are for example the Bollinger bands, the moving averages, the MACD indicator, the pivot points or the technical support and resistance levels. But these indicators are of course not to be calculated manually even if it remains possible while requiring solid bases in mathematics and statistics. The most innovative current stock market charts generally allow to display directly and thus visually these indicators.
Of course, if you want to do a technical analysis of the AUD/USD, you will still need to be able to interpret these indicators and cross-check them with the other elements at your disposal, especially the fundamentals.
However, it is important to remember that technical analysis, although based on precise mathematical data and figures, is not 100% reliable because the foreign exchange market, like other financial markets, is an unpredictable market and it is also important to be aware of the often strong effect of investor psychology, which is not quantifiable here.
In summary, AUD/USD analysis is not suitable for beginners and requires some knowledge and experience.
In order to invest in the AUD/USD currency pair, it is necessary to take an upward or downward position on this exchange rate through the Forex or foreign exchange market. An upward position is based on an increase in the value of the Australian dollar against the US dollar and a downward position is based on an increase in the value of the US dollar against the Australian dollar. The gain or loss realized here will be the difference between the opening and closing exchange rate of the position.
It is not possible here to advise one strategy over another with regard to trading the AUD/USD, as the choice of an investment method depends largely on the investor's profile, objectives, the time he or she can devote to this activity and his or her level of knowledge. It should be noted that the analysis performed will often vary depending on the strategy adopted.
The number of Forex brokers on the market is very large, making it difficult to choose a broker to trade AUD/USD. It is indeed preferable to make a precise comparison of the different brokers, taking into account the quality of the platform offered, the level of the spread practiced or the choice of other assets available and of course by ensuring that the broker is licensed.
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