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Basic Guide to Trade AUD/USD

Forex traders appreciate the AUD/USD currency pair for its liquidity. Online brokers offer attractive spreads. Besides, with this particular instrument, one gets linked to global economic trends.

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To trade AUD/USD, you need to have a good background, as the instrument can swiftly react to specific financial data. Besides, it is highly affected by central bank intervention in the form of monetary and fiscal policies.

The best way to bring your Forex trading to a new level is to consider not only baseline technical analysis perspectives but also key fundamentals explained in this article.

A Brief Introduction to the AUD/USD Pair

AUD/USD expresses the relation between the Australian Dollar against the American Dollar. In simpler words, it shows how much USD you need to purchase 1 unit of AUD. In this pair, we have the Australian Dollar as the base currency while the USD is a counter or quote currency.

Generally, the pair is under the direct influence of market risk sentiments as well as commodity prices. This is why it is so popular among Forex traders. In general, AUD/USD is among the most traded currency pairs in the market.

Reasons to Trade AUD/USD

AUD appears to be the 5th most traded currency in the world. It accounts for more than 7% of the global FX turnover according to the Bank of International Settlement report.

At the same time, the currency pair is considered a risk-linked instrument. The Australian Dollar can be extremely sensitive once the commodity prices have started moving. This is mainly because of the nation’s huge raw market exports.

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As for the main advantages and reasons to trade AUD/US, they include some of the following.

1. Liquidity

While AUD/USD is among the most traded currencies across the globe, the instrument is quite liquid. For traders, high liquidity means lower trading costs, less slippage, excessive market depth, and the ability to move without crucial price variances even if purchased or sold in significant volumes.

2. Tight Spreads

Once again, as one of the widely-traded instruments, the currency pair comes with tighter spreads, which is a good advantage for retail traders. Tight spreads mean lower trading costs.

3. Round-the-Clock Trading Opportunities

AUD/USD is available for trading 24/7 between Mondays and Fridays. It means a seamless ad hassle-free trading experience for market participants despite the location or time zone. However, it is still better to select trading hours with maximum traded volumes.

How to Trade AUD/USD Using Fundamental Analysis

As stated earlier, AUD/USD is a commodity- and risk-linked currency pair. In simpler words, the instrument can be very sensitive to changing trends in market sentiments. If the market conditions are favorable enough, the pair will move upwards. When the market experiences headwinds and turbulence, AUD/USD will move downwards.

Australia’s main export products include gold, coal, copper, and iron ore. The price for these commodities can also affect the currency pair greatly. To gain success with AUD/USD Forex trading, one needs to take into account all these correlations. Besides, it is very important to know how to read the fundamental metrics.

Other factors can also help you make proper decisions and predict trends. They include the Reserve Bank of Australia (RBA) policy as well as the overall economic health. Additionally, we should never ignore the influence of China, as the two countries are in close economic relations.

To make things easier, when the released economic data shows steady growth and robust external demand, we may expect the AUD to strengthen. Conversely, downturns will slow down economic growth and weaken the national currency.

RBA is another driver for the AUD/USD currency pair trends depending on the monetary and fiscal policy. The Bank issues monthly guidance with all baseline economic data to consider when planning a trade. For example, if they plan to cut interest rates, AUD/USD may fall while hikes can lead to the currency pair rise.

As stated earlier, China and Australia have close economic connections. It means, AUD/USD can move in response to the Chinese economic news and data.

How to Trade AUD/USD Using Technical Analysis

It all depends on your readiness to take risks. Additionally, we need to take into account timeframes, Forex strategy preferences, and other factors associated with your trading personality.

However, the general approach to trading AUD/USD using Technical Analysis is quite typical. It includes the following stages:

  1. Identify a trend. At this stage, you might need a set of simple tools and Forex indicators such as Simple Moving Average lines and Bollinger Bands.
  2. Using SMA. With this indicator, one can calculate the average closing price for a selected timeframe (20- or 50-Day).
  3. Using Bollinger Bands. If you see a flip below the middle of the line, it may signalize the bearish trend reversal. In an uptrend, the currency pair is traded in the upper half of the indicator.

The Bottom Line

AUD/USD is definitely a good asset to trade. It is one of the widely-traded currency pairs with 24/7 access to the market. The most active trading hours are between 7 p.m. and 4 a.m. with volatility spikes in case of specific macroeconomic data or policy established by RBA.

The main market participants include not only retail traders but also banks and financial institutions, hedge funds, money exchangers, and companies involved in purchasing and selling commodities.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.