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AUDUSD Currency Pair

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Overview | AUDUSD Chart | Key Facts

The AUDUSD Currency Pair

The currency pairing of the Australian dollar (AUD) and the United States dollar (USD) is one of the most commonly traded pairs on the forex market. From a volume-traded perspective, both are classified as major global currencies. According to the International Bank of Settlements, USD is ranked as the most frequently traded currency in the world, while AUD ranks fifth.1)Retrieved 5 October 2016 http://stats.bis.org/statx/srs/table/d11.3

AUD/USD is considered to be a commodity pairing, which involves currencies from countries that have large quantities of raw materials. There are three commodity pairs in forex: AUD/USD, USD/CAD, USD/NZD.

In the case of AUD/USD, the commodity that serves as a catalyst for exchange rate valuation is gold. Both the United States and Australia play a key role in the global production of gold, ranking second and third respectively.2)Retrieved 5 October 2016 https://dfat.gov.au/about-us/publications/Documents/australias-gold-industry-trade-production-and-outlook.pdf In addition, the United States is the world’s fourth-largest exporter of gold (US$19.3 billion annually), while Australia is the seventh-largest global exporter (US$10.7 billion annually).3)Retrieved 5 October 2016 http://www.worldsrichestcountries.com/top_gold_exporters.html

It’s important to recognise that the impact of gold pricing is very different on each currency. In respect to USD, gold has an inverse relationship. Conversely, an appreciating value of AUD is positively associated with robust gold pricing. The conventional wisdom is that AUD/USD exhibits a long-term positive correlation to the price of gold.

In addition to being commodity driven, AUD/USD has been a vehicle by which to execute a carry trade. A carry trade is one in which an individual borrows money at a low interest rate and reinvests the borrowed capital in an asset that will provide a larger return.

Historically, AUD has been a prime candidate for currency carry trades, because the Reserve Bank of Australia typically holds higher interest rates than those of other developed countries. For example, for the first quarter of 2016, AUD had a cash rate of 2%,4)Retrieved 6 October 2016 http://www.rba.gov.au/statistics/cash-rate/ while the United States Federal Reserve had installed a rate of .5% upon the USD.5)Retrieved 6 October 2016 http://www.tradingeconomics.com/united-states/interest-rate Because AUD offered a superior rate of return than that of USD, AUD/USD became a vehicle for investors to capitalise on the interest rate discrepancy.

Traders and investors are attracted to AUD/USD for several reasons.

No matter which style of market participation is preferable, AUD/USD is a prime candidate for active trade.


Key Facts: AUD/USD

Australian Dollar (AUD)

United States Dollar

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