The Australian dollar is commonly
referred to as Aussie (pronounced aw-zee),
or even just Oz for short. These
terms refer to both the AUD/USD pair and Australian dollar cross pairs. Aussie
trading volume accounts for a little over percent of daily global spot
turnover, but it’s still a regular mover, both against the U.S. dollar and on
the crosses, so it makes an active currency pair for speculators.
In trading AUD/USD, you need to
factor in all the usual macroeconomic suspects, like monetary policy rhetoric,
interest-rate levels, and all the domestic economic data that determine them.
Comments by officials from the Reserve Bank of Australia (RBA), the central
bank, and the finance minister can move the Aussie market sharply.
The boom in Asian regional growth over the past
decade and high levels of global economic growth have beneļ¬ted the Australian
economy in recent years. Those high levels of growth have brought with them
relatively high levels of inflation, prompting the RBA to repeatedly hike
interest rates. As a result, nominal interest rates in Australia are currently
the second highest among the dollar pairs, with only New Zealand interest rates
higher. That means the interest-rate outlook is especially critical to the
value of the Aussie.
Aussie trading is also heavily
influenced by cross trading, especially against the yen, because the AUD/JPY
cross captures one of the highest interest differentials between major
currencies. AUD/JPY has been a favorite among traders pursuing the carry trade,
so you’ll want to monitor important AUD/JPY technical levels.
Aussie trading is also regularly
influenced by New Zealand economic data, but the flow is usually more
significant in the opposite direction, where Aussie data will exert a larger
pull on NZD prices, given the larger size of the Australian economy. Still,
when trading Aussie, it helps to be aware of upcoming NZD data, because the two
tend to move together in regional sympathy. Occasionally, though, divergent economic
data can produce sharp swings in the AUD/NZD cross rate, where NZD may be sold
on weaker NZ data, for instance, and AUD bought if Aussie prospects remain more
buoyant.
Trading
AUD/USD by the numbers
Market quoting conventions for
trading in AUD/USD are to quote the pair in terms of the number of USD per AUD.
An AUD/USD rate of 0.7800 means it takes USD 0.78 (or 78 ¢) to buy AUD1. This
is the same convention as GBP/USD.
AUD/USD trades in the opposite
direction of the overall value of the USD and in the same direction as the
value of the AUD. A higher AUD/USD rate means the AUD is stronger/USD weaker,
and a lower AUD/USD rate means AUD is weaker/USD stronger. If you think the AUD
should strengthen, for example, you’ll be looking to buy AUD/USD. Alternatively,
if you think the USD is in an overall strengthening trend, you’d be looking to
sell AUD/USD (buy USD).
AUD is the primary currency in
the pair, and USD is the counter currency, which means
- USD is traded in amounts denominated in AUD.
- The pip value is denominated in USD.
- Profit and loss accrue in USD. For a 100,000 AUD/USD position size each pip is worth USD 10, and each pip on a 10,000 AUD/USD position is worth USD 1.
- Margin calculations are typically in USD on online trading platforms. Because of AUD’s lower relative value to USD, the amount of margin required per lot of AUD/USD is one of the lowest of the dollar pairs. At an AUD/USD rate of 0.7800, for example, a 100,000 AUD/USD position size requires USD 780 of margin, and a 10,000 AUD/USD position needs only USD 78. Compare that to the USD 1,300 of margin needed for a 100,000 EUR/USD position (at 1.3000) or USD 1,900 needed for a 100,000 GBP/USD position (at 1.9000), and you can see that AUD/USD provides a lot of pip bang for your margin buck. But don’t trade Aussie solely on its lower relative margin cost. The margin cost will change over time based on changes in the AUD/USD exchange rate, with a lower AUD/USD rate requiring less USD in margin and a higher AUD/USD rate requiring more margin USD.
Australian
events and data reports to watch
Australian data and events
regularly transpire during the New York late afternoon or early evening, which
is early morning the next day in the land down under. Keep an eye on the
following:
- RBA and treasury speakers, RBA rate decisions, and monetary policy outlooks
- Trade balance (monthly) and current account balance (quarterly)
- Employment report
- Consumer and business confidence indices
- CPI and producer price index (PPI) reports
- Retail sales and housing market data
