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EURAUD Currency Pair

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Overview | EURAUD Chart | Key Facts

The EURAUD Currency Pair

The currency pairing of the euro (EUR) and Australian dollar (AUD) affords forex market participants several unique trading and investment opportunities. Global economic cycles, fluid monetary policy and variance in commodity pricing can create favourable intraday and long-term trading circumstances.

Both currencies are considered to be “major” global currencies and are among the top-eight most frequently traded in the world. According to the International Bank of Settlements, the euro ranks second globally and accounts for 31.3% of daily foreign exchange turnover. In comparison, the AUD is involved in only 6.9% of currency turnover, earning a rank of fifth.1)Retrieved 23 October 2016 http://www.bis.org/publ/rpfx16fx.pdf

Classified as a “cross currency pairing,” also known as simply a “cross pair,” EUR/AUD exists in isolation from the United States dollar (USD). In general, cross pairs enable currency traders to move from one international currency for another without first having to convert the base currency to US dollars. The streamlining of the exchange process reduces risk through eliminating potential pricing volatility related to the current valuation of the USD. In the case of EURAUD, euros are directly exchanged for Australian dollars without having to first convert euros to USDs.

It’s important to recognise that although both the EUR and AUD are major currencies, the pairing of EURAUD is considered a “minor” cross. As of April 2016, it ranked as the sixth-most frequently traded cross pair, with an average daily volume of US$16 billion.2)Retrieved 23 October 2016 http://www.bis.org/publ/rpfx16fx.pdf Aggregate volume of the pairing comprises .3% of the total daily volume traded on the forex, earning the ranking of 28th most commonly traded forex pair. The lighter trading volumes expose EURAUD to periodic swings in pricing and rapid exchange-rate fluctuation.

The economies of the European Union (EU) and Australia are different in terms of size and scope. Although being comprised of 27 different nations and collectively ranking as the second largest economy in the world,3)Retrieved 23 October 2016 https://www.thebalance.com/world-s-largest-economy-3306044 the EU conducts limited trade with Australia. The United Kingdom and Germany are Australia’s most significant trading partners residing in the EU, and they collectively represent 5.6% of foreign trade.4)Retrieved 24 October 2016 http://dfat.gov.au/trade/resources/trade-at-a-glance/pages/default.aspx Key components of the trade relationship are vehicles and machinery from the U.K. and Germany, and commodities such as energy products, metals and foodstuffs from Australia.

The AUD is often thought of as a commodity-based currency, specifically in reference to its economic dependence upon gold production and exportation. Australia is the world’s second-largest producer and transporter of gold, with exports being valued at upwards of US$14 billion annually.5)Retrieved 24 October 2016 http://www.minerals.org.au/resources/gold/exports/

When taking into account the amount of domestic economic output related to gold production in Australia, it’s not surprising that the AUD shows a positive correlation to the pricing of gold. Typically, as the value of gold increases on global markets, the AUD increases in value.

This relationship can have a substantial impact upon the exchange rate volatility facing EUR/AUD. Data releases that impact gold valuation may spike intraday volatility facing the pair. In addition, market fundamentals related to Australia’s gold-producing capabilities may act as a precursor to longer-term trends. Market participants need to be aware of economic data related to gold’s valuation and Australian gold production.

The global debt crisis of 2008 serves as a prime example of global economic factors contributing to the exchange rate volatility of currency pairings, specifically cross pairs. This was evident in the valuation of the EUR/AUD. During the peak of the crisis, from July 2008 to December 2008, the EUR/AUD experienced a substantial appreciation in pricing. Beginning on July 1, 2008, and ending on December 31, 2008, the EUR/AUD traded in a range between 1.6500 to 2.0800, and sustained over a 20% bump in rate.6)Retrieved 24 October 2016 https://www.ecb.europa.eu/stats/exchange/eurofxref/html/eurofxref-graph-aud.en.html The increased range of price action was attributed to international currency traders seeking to protect wealth and possibly profit from economic uncertainty.

The exchange rate volatility present in EUR/AUD in 2008 serves as an illustration of its disposition. Even though the pairing can serve as a viable diversification tool or hedge against risk, it’s also prone to substantial periodic swings in valuation. It’s necessary for each trader or investor to decide if actively trading the EUR/AUD is a worthwhile endeavour.


Key Facts: EUR/AUD

Euro (EUR)

Australian Dollar (AUD)

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