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 5 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.
Aussie trading is also heavily influenced by cross trading, especially against the yen. 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 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, 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 0.7300 means it takes USD 0.73 (or 73 cents) to buy 1 AUD. This is the same convention as GBP/USD.
AUD/USD trades in 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’d 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
- AUD/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 0.7300, for example, a 100,000 AUD/USD position size requires USD 730 of margin, and a 10,000 AUD/USD position needs only USD73. Compare that to the USD 1,300 of margin needed for a 100,000 EUR/USD position (at 1.3000) or USD 1,500 needed for a 100,000 GBP/USD position (at 1.5000), 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 Year 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)
- Consumer and business confidence indices
- CPI and producer price index (PPI) reports
- Retail sales and housing market data
Trading fundamentals of AUD/USD
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