Forex Trading: The AUD/USD Currency Pair

The AUD/USD major currency pair is not the most popular but it is nevertheless a widely-traded pair, it is also known as the “Aussie dollar” by forex traders. The US dollar is by far the more widely traded currency of the two, recording over-the-counter (OTC) average daily turnover of US$4,438 billion (88% of the market) during 2016. The AUD recorded an average OTC daily turnover of US$348 billion (7% of the market) during the same period.

By comparison, the AUD/USD currency pair is not among the highly volatile currency pairs, recording a volatility of 0.99% during the last 10 weeks, having moved by some 71.32 pips. The currency pair opened on Monday March 6, 2017, at 0.76580, down from the previous close of 0.7596 (Bloomberg).

The Fundamental Factors Affecting the AUD/USD Currency Pair

A wide range of fundamental factors affects the rate at which the AUD/USD trades. Among these factors are the economic policies of both countries, the prevailing political climate in each location, employment rates, interest rates, and trade policies.

Major political events such as the Presidential elections that occurred in the United States in November 2016, tend to have a major impact on currencies. For example, following President Trump’s surprise win, the currency pair experienced a surge in volatility with the Aussie moving upwards just before the elections and then dropping sharply following the unexpected victory of President Trump. After reaching a 6-month intraday high of 77.72 cents on November 9, 2016, the price plummeted to 75.80 cents as it became evident that Trump could win the 2016 US Presidential elections. Although the pair stabilised somewhat following the President’s victory speech, volatility stayed buoyant for a few weeks as traders and investors adjusted to the new developments.

As 2017 progresses, the currency pair is expected to reflect investor sentiments concerning President Trump’s economic and trade policies. Fiscal policies are also expected to play a significant role in determining the rates at which these two currencies will trade throughout the year. Any rate hike decisions taken and implemented by the US Federal government, are likely to result in a strengthening of the US dollar relative to the Aussie, all other things remaining equal. President Trump’s promise of increased employment opportunities is also likely to trigger investment if realised. As traders and investors gain a clearer understanding of the US President’s policies, volatility is expected to taper off.

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