AUD USD: Australian Dollar vs US Dollar: Rate, Chart, and Forecast
Just because a country has a large economy doesn’t mean that its currency will be in demand in the forex market. Take India and South Korea for instance. India is the 6th largest economy in the world and South Korea is the 10th largest one but both their currencies don’t make the Top 10 Most Frequently Traded Currencies in the World. Australia, on the other hand, is the world’s 13th largest economy but its currency, the Australian Dollar (AUD) is the 5th most frequently traded one in the world. Here, we will study the AUD USD pair, and compare the Australian Dollar with the world’s reserve currency which is the US dollar.
What is AUD USD? An Overview
Foreign exchange trading takes place via currency pairs. So, you can trade the AUD with several currencies including the USD.
The AUD to USD exchange rate changes on a daily basis. For example, if it is 0.74 today, this means 1 AUD is worth 0.74 USD. How is this decided? Basically, the exchange rate is the price of one currency in terms of another currency. Exchange rates are always fluctuating because they are being traded 24/7.
An AUD/USD currency implies how much USD 1 AUD will get. However, when you go to a bank, the AUD to USD conversion might be 0.7. This is because the difference between the market exchange rate and the bank’s exchange rate is the profit that the bank earns. So, you might require a higher or lower amount of capital each day to convert AUD to USD.
AUD USD Price Chart
The chart below gives an idea of how the AUD has moved compared to the USD over the last week.
How to Read the AUD USD Chart
The chart looks pretty similar to a stock chart but it isn’t. The graph doesn’t show the stock price movements but an exchange rate. It’s a line graph which is one of the simplest graphs to read. It shows the rise and fall of the AUD against the USD over a period of one week. The x-axis represents the time and date over the week while the y-axis shows us the fluctuations in exchange rates over time.
AUD USD Historical data
Historically, the AUD has always been weaker than the USD. The AUD reached a high of 1.49 against the USD in December 1973 and once more during the 2000s.
AUD USD Exchange rate history
If we take a look at historical data, the USD has always been stronger compared to the AUD. However, soon after the financial crisis of 2009, the AUD gained significant momentum primarily due to weak USD and quantitative easing measures.
The AUD gained 34% against the USD back in 2003 just after the dot-com bubble and gained by 27% in 2009. We can see that after an economic recession, the AUD has managed to outpace the USD. This trend was visible in 2020 as well where the AUD appreciated close to 10% compared to the USD. In 2020, 1 AUD was worth 0.77 USD which means 100 AUD will be worth 77 USD.
AUD USD exchange rate today
The AUD/USD exchange rate has remained constant over the past year. In November 2020, the AUD/USD currency pair was 0.73. It moved up to 0.8 in February 2021 but has since fallen to 0.74 and is still constantly fluctuating.
What influences the AUD USD exchange rate?
As stated earlier, there are several factors that impact foreign exchange rates all over the world. Let’s take a look at a few of these factors here.
Economic Data
The FX rate depends on economic data that include GDP, retail sales, economic decisions, industry data, political stability and elections, and new government policies.
Price of Commodities
Australia is a resource-rich country. It is a major exporter of iron ore and coal. Iron ore is Australia’s biggest export and around 80% of iron ore is exported to China. The last one year saw iron ore prices hit a high of $219 which put the AUD in a strong position. Iron ore is currently trading at $95-$100. While iron ore has fallen, coal prices have risen and made up for the slack. However, with coal, a major challenge is that the world is moving towards a greener future. Gold is another major Australian export that makes up around 5% of total Aussie exports.
Relationship with China
One of the biggest reasons the AUD is popular in the forex market is that it is used as a proxy for the Chinese Yuan. China is Australia’s top export market and it is also the world’s second-largest economy. Good news for the Chinese economy is good news for the AUD.
Inflation in Asia and developed countries
Apart from China, Australia is also a major exporter to Japan and India, and other Asian countries. Natural resources demand is high in all these countries. High natural resource prices cause inflation to go up in large Asian economies and developed countries. This results in a better economic outlook for Australia.
Speculation
The AUD is often called a commodity currency (see the point on commodities to know why). The AUD is the world’s fifth most traded currency because it is often used as a proxy for Chinese and Japanese currencies. It is a very good indicator of short-term outlook and global sentiment. This makes it very attractive to speculators.
AUD USD Forecast and Predictions
The top four banks in Australia have downgraded their estimates for the AUD in 2021. In 2020, ANZ, CBA, NAB, and Westpac said they expected the AUD/USD to trade at around 0.75 to 0.8 for the first half of 2021, and then fall to around 0.7 by the end of the year. From the looks of it, they haven’t been too far off the mark.
A major reason for the AUD weakening in the second half of 2021 is the decelerating demand for coal to fight pollution. This also impacted production levels in China’s factories which in turn caused iron ore prices to crash in the same time period. Weak commodity demand from China has weakened the AUD.
The supply chain disruption across the world hasn’t helped either. The restrictive lockdowns in the country aren’t doing anything to help the economy grow faster.
The Reserve Bank of Australia has adopted a dovish policy and has stated it intends to continue with it. It said that a rate hike is likely only in 2024. The RBA has raised its growth and as well as inflation forecasts but the dovish stand combined with slowing Chinese demand has hurt the AUD.
The National Australia Bank and Westpac expect the AUD/USD to move up to 0.8 by June 2022. The reasons for this are as follows:
- Increased demand in China for Australian commodities like iron ore.
- Economic recovery in Australia.
- A weak USD.
Why Should You Trade the AUD USD Today?
There are several advantages to trading the AUD USD currency pair:
- Reopening of the world economy: The coming months should see the world reopening at pre-pandemic levels. The supply chain disruptions should also slowly get resolved. This will see an increased movement for natural resources from Australia which should see sentiment improve.
- High liquidity: Liquidity in a forex market refers to the level of activity in a market. The number of traders and the volume they trade define liquidity. The forex market is so liquid because it has zero holidays. It is operational 24/5. Higher liquidity in a market means volatility is maintained within a range, orders are executed faster and the bid-offer spread is tight.
- Tight offer spreads: This ensures that the cost of trading for retail traders/investors is kept to a minimum.
- Recovery in China: The Chinese economy has been slowing down for a large part of 2021, and relations with Australia have also suffered. However, it is expected that the coming months will see China rev up its economic engines again, and Australia is likely to be a direct beneficiary.
Where Can You Invest in the AUD USD Currency Pair?
There are hundreds of forex brokers and websites where you can trade in AUD/USD. However, it is essential that you choose one which is trustworthy and is compliant with myriad international rules and regulations. One of the best forex brokers to use is ZFX.
ZFX or Zeal Capital Market is a regulated broker which offers traders several options to trade across different markets like forex, commodities, and cryptocurrencies. It provides traders not only with a wide range of trading assets, but also with a free demo account, a large amount of free educational resources, competitive fees and spreads among a lot more advantages. You can start trading with ZFX in just a few steps, as we shall now explain.
How to Trade the AUD USD Currency Pair?
It’s very easy to start trading AUD on ZFX. All you have to do is follow the next steps.
1 – Open a ZFX Account
You register on ZFX by submitting your full name, mobile number, and email. You get a verification code on your mobile and you set up your password.
In case you are unsure about trading on ZFX and want to test it out, you can opt for the Demo Account. This is a training account that lets you experience the ZFX interface without actually trading with money. It occurs in a risk-free, controlled environment. Think of it as a practice account.
Once you are sure that this is the right one for you, you can opt for a Live Account. In that case, you can then choose between the different live accounts offered. Simply select the one which best fits your needs . And that’s it, your account is ready.
Note that once your open your live account, ZFX will invite you to download the ZFX MT4 platform. ZFX will also provide you with your own username and password to access the platform. You will need to install and access the platform in order to start trading, so make sure to take note of this information.
2 – Make your First Deposit
The minimum amount of deposit you need to start trading depends on the type of account you chose to open. Regardless of the type of account, you can make deposits through bank transfers or credit cards. Simply go to “Deposit” and enter the amount you which to submit, and enter your banking details.
3 – Verify your Account
Once you have done this, your account needs to be verified. You need some documents for this: A national ID card, driver’s license, or passport. Then, you have to scan or photograph select pages of your ID and upload them on ZFX. You have to upload a photo of your bank book or a copy of your bank statement. The photo should be the same as the bank account you set up when you opened your trading account with ZFX.
4 – Start Trading AUD USD
Now that you are all set up, you can start trading. You just have to download MT4 from ZFX. The MT4 is a great trading tool. With its powerful analysis tools, a wide variety of instrument options, and fully scalable and mobile compatible programs, MT4 is one of the most popular Forex trading platforms in the world.
5 Tips for AUD USD Trading Beginners
Forex trading is very exciting and with a currency pair like AUD/USD, you might feel you have what it takes to master the forex markets. However, it is always good to start with the fundamentals. Before you enter the world of forex trading, here are a few tips to get started:
- Understand the markets: Spend a few days or tens of hours just observing the markets. Study AUD/USD thoroughly, figure out patterns and movements, and factors that influence the currency pair.
- Write down your goals: Understand your risk tolerance, the money you can afford to lose and what your profit goals are. Create a plan and stick to it.
- Start with a demo account: You have spent 10 hours a day for two weeks just studying the market and you are sure you have understood how the game is played. Great! Now is the time to test all your theories. Sign up with the Demo Account on ZFX and put your hypothesis to the test. You will get a chance to trade AUD/USD in a risk-free environment and make your early mistakes there.
- Settle on your methodology: Are you a fundamental trader or a technical trader? Are you a day trader or a position trader? Make sure you choose a style that fits your risk tolerance.
- Stay updated with all news on AUD/ESD: This is a no-brainer but you have to keep updated with all the news that could affect AUD/USD.
Bottom Line: Is AUD/USD a Good Currency Pair to Invest In?
Australia has been under severe lockdowns since the pandemic. The political situation with China hasn’t helped. This has weakened the AUD in the second half of 2021. But the government will have to resolve these issues as quickly as possible. That could turn things around for the AUD in 2022. Apart from this, since AUD/USD is one of the most liquid currency pairs in the forex market, the shocks here are not too high.
Ready to get started? If so, all you have to do is open an account ZFX following the tutorial outlined in this article. You can then invest in AUDUSD easily and also discover all the other promising forex pairs the broker has to offer.