Discover the benefits of trading AUD/USD. Learn how to overcome trading challenges with this easy and simple guide.
The AUD/USD is a popular currency pair. It belongs to the top 5 most traded pairs.
The high liquidity rating, fairly low volatility, and enticing spreads make it a go-to for forex traders. Although, it can be highly affected by the price of goods and market attitude.
Read this simple and comprehensive guide and learn how, when, and why to trade AUD/USD.
What is the AUDUSD?
The AUD/USD stands for the conversion of the Australian Dollar to the US Dollar. The rate of trade will give the number of US Dollars used to buy an Australian Dollar.
The Australian Dollar is t the base currency, while the US Dollar is the quote currency.
Let us say the AUD/USD is trading at 0.5. It means that it needs 0.5 USD to buy 1 AUD.
History has a great impact in molding an economy and its monetary system. So, before we jump into trading AUD to USD, let’s dig a little into history.
Before 1966, the Australian Pound was the legal tender of Australia. The value of the Australian money was anchored with the Pound Sterling.
During that time, 2 British Pounds were equal to one Australian Pound. And at that time, the old imperial monetary system was in force.
The government then switched to the Australian Dollar. They abandoned the imperial system and adopted the decimal currency system.
In 1983, the Australian Dollar became a floating currency.
For a time, their monetary value was tied to the USD. But it finally became independent.
In the following years, Australia gained momentum in global trade. Its rich resources helped grow its economy.
The volume of export increased. The country was able to cultivate relations with western and Asian countries.
Australia is rich in gold, copper, and iron. The largest amount of profit comes from its mineral exports.
It takes up half of its overall export profits. It is valued at an estimated one billion AUD.
Their biggest trade partner is China.
The Chinese government and private Chinese companies buy most of their exported goods.
Studies show that their economy was given a major boost by their export trade with the Asian giant.
In the 18th century, the US printed the first USD.
Amidst the American Civil War, there was a demand for paper currencies.
Paper bills became predominant. Their dominant green color earned them the nickname greenbacks.
When the US stabilized both politically and economically, the price of their money rose.
Its steady rise made it the top currency globally.
In 1994, it became the first official global reserve currency.
It was a result of a majority of the vote among the Allied countries after the Second War. They stipulated it in the Bretton Wood Agreement.
To this day, the USD is the strongest currency.
Some growing countries use US Dollars as their legal tender. It includes Puerto Rico, Ecuador, Panama, Somalia, and Guam.
The USD is used globally:
- to settle intercountry financial transactions;
- as national reserve currency instead of gold;
- to set the price of gold and goods; and
- in conducting oil transactions in OPEC countries.
What are the benefits of trading AUD to USD?
Because of their strength, the AUD USD is a popular tandem.
Let’s look at some benefits of trading AUD to USD and what makes this pair is a great pick in trading.
Liquidity measures market activity. High liquidity means a high number of traders and a high volume of trades.
Compared to other pairs, AUD/USD is more liquid. Their pairing creates a high number of interested traders.
It results in a high level of liquidity. It allows easy and quick opening and closing of positions.
High liquidity makes the market fairly stable. It leads to low volatility.
Low volatility means that there is a minimal change in the price. It means that it is a safer trade option.
Best performing major currency
The AUD is slowly climbing up the ladder.
Recent reports indicate that it has gained more than a 30% increase against the US Dollar in the last couple of years.
Export Driven Economy
The Australian economy has weathered many economic storms over the years. But it has stood firm and consistently improved.
It is thanks to its natural resources. While other countries have struggled to cope with global economic downturns, their export trade kept them alive.
It exhibits a stable and growing economic performance.
Good trading relations with China
The Covid 19 pandemic is one of the worst global events that affected the economy of all countries.
Even so, the Australian currency was able to maintain a steady upward move. It is partly due to its relationship with China.
The AUD remains strong amid the lockdown.
Climbing Gross Domestic Product (GPD)
Australia’s GDP is predicted to rise over the next couple of years.
Increased interest rates
Australia has a high-interest rate. It encourages foreign investment and foreign trade.
- Trading resources
Trading can seem daunting for newbies. There are so many technical aspects that can be hard to master.
But like another task, it gets easier with experience. One another good thing is that there are so many resources that can help you.
The internet is overflowing with helpful information.
Forex trading sites and blogs offer updated reviews about the market. Use can read up on current political and economic events that might impact the prices.
Most importantly, there are free technical tools that you can use to measure statistical data. The results can help you assess the odds. It makes decision-making easier.
Safe choice for novices
The low volatility makes it a safe option for beginners.
What are the challenges when trading AUDUSD?
The Forex market is such a lucrative trade. But like all forms of business, it is full of risks.
Let us study some of the challenges that traders might encounter when trading AUD/USD.
The high liquidity of the AUD/USD makes it stable. We’ve established above that the AUD/USD pair has low volatility.
But that is only true most of the time. There is still a chance that things will go wild.
Volatility is highly unpredictable. The currency exchange is affected by many factors.
The market can be going smooth one minute, and chaotic the next.
And although volatility is a window for higher gains, it also opens up doors for potential losses.
The Australian economy relies mostly on export trade. In the event of political issues with trading partners, their economy can be largely affected.
So, never be complacent in your trades. You must have risk management strategies in place.
A country’s central banks are responsible for managing the economic system. If there are impending risks, they can take action.
Central banks can enforce policies and mandates that can affect foreign trading. These policies can cause sudden and drastic changes in the currency rate.
As such, traders should be vigilant.
Step-by-step guide on how to trade AUDUSD with Vantage FX
This guide is made for beginners. It teaches you how to trade AUD/USD through Vantage FX using the MetaTrader4.
Create an account
First thing first, you cannot trade online without going through a broker. So, the first thing you should do is open an account.
There are many choices of online forex broker. Vantage FX is one of the best.
Choose a broker
Vantage FX is an award-winning Australian broker. Their mission is to help clients reach their financial goals through transparent access to the market and powerful trading platforms.
Why trade with Vantage FX?
- Low trading fees with no hidden fees
- 24-hour support through chat, phone, and email
- Quick trading executions
- Supports mobile trading
- Licensed and regulated
Open an account
If all of that ticked your boxes, then go to vantagefx.com and register.
When registering you can choose to open a demo account or live account or both.
The demo account will be opened instantly after you fill out and submit the form. They will send your login information in your email.
The demo account will allow beginners to learn and practice trading. The Vantage FX demo account give you $100,000 virtual funds.
Experienced traders can also use the account to text out their new trading strategies.
The demo account is only valid for 30 days.
The live account allows you to trade in the actual market.
Opening a live account on Vantage FX will require you to a scanned copy of clear picture of the following documents:
- Proof of identification
- Proof of address
The account will be opened upon 24 hours after submitting the application and required documents. The proof of address can be submitted later. But it is a must before you can withdraw.
Trading platforms are computer applications that allow you to trade.
Vantage FX uses MetaTrader4, MetaTrader5 and the Vantage FX mobile app.
Before you download a trading platform, set up a live a MetaTrader4 or MetaTrader5 account in the Vantage FX dashboard.
After doing that, you can login to the platform using your Vantage FX credentials.
MetaTrader4 is the earliest trading platform developed by MetaQuotes in 2005. It is the more popular and commonly used.
MetaTrader5 was created in 2010. This version allows a wider ranger of trading options. You can trade not just currencies but also stocks, commodities and other assets.
While both platforms allow forex trading, the MetaTrader4 is said to better. This is because it is simpler and has less glitches.
Before you can place an order, you first have to open a position.
To do this follow these steps:
- Look for the tools tab and click it.
- Click new order from the drown down menu or press F9 in the keyboard.
- An order window will pop out. Fill it in.
- The symbol allows you to choose the currency pair.
- The volume determines the number of contracts per trade.
- If the trade goes against your favor, stop loss will minimize losses. Place a number of pips you think is acceptable.
- Take profit makes sure to take home a profit. If price hits the number of pips you indicated, it closes the trade automatically ensuring you have a gain. Although it limits your profit, it is a safe tool in trading volatile assets.
- The comment section allows you to leave a not for yourself about that particular trade. This can be helpful for future trades.
- The type of trade is either instant execution or pending order.
- Choosing the instant execution will immediately place your order after you click buy or sell.
- The pending order will let you choose the when the trade become active. When you click it, another window will pop up. It will allow you to place the price at which the order become active. It will also prompt you to place an expiry date for the pending order if it does not reach the price.
- Click buy or sell to place your order.
Track your orders
To track your all your order, click view on the toolbar. Select terminal and then look for the trade tab.
If you want to delete an order, you can do so by clicking on the x mark at the right end of each order.
You can modify certain aspects of your order. This include the stop loss and take profit.
Go to the trade tab. You can navigate the toolbar or press control button + T.
Right click on the order you wish to change and click modify.
A window will pop up and let you make changes in the order.
To approve the changes, click on modify button on the button of the window.
Technical indicators can help you trader better.
To add a desired indicator, click on the navigator and drag it on the chart.
To remove or modify an indicator, right click anywhere on the chart. Click on indicator list. Choose from the list of indicators.
Click edit to changes settings or delete to erase it.
Strategies on trading AUD/USD
Knowing when to trade is vital. Timing is not everything, but it is something.
The timing of your trades will bring the most benefit and reduces the risks of losses.
The AUD/USD is a liquid currency pair. Trading is open 24 hours a day five days a week. But the peak hours of trading are between 1900H to 1430H GTM.
The more active the market is, the easier it is to open and close positions. It makes trading a lot easier.
Timeframe refers to the period that you will hold a position.
It categorizes traders. They can be:
- Scalpers – opens and closes trades in a few seconds or few minutes;
- Day traders – opens and closes trades within the day;
- Swing traders – can hold the position for several days, usually within the week; and
- Position traders – can hold their position for several weeks to several months.
Your trading plan should include a timeframe. Short-term and long-term trading both have benefits.
The important thing is to be alert for signals. These can tell you when to enter or exit.
Identify the trend
Before opening a position, you should have an idea where the price is moving. Also, you should evaluate the volatility of the market.
These will help you plan your moves.
Create a plan
Although the AUD/USD is a fairly stable currency pair, it is vital to have a plan.
Trading plans should be specific to the currency pair taking into account all factors that might affect it.
Another vital part of a plan is risk management. These define the actions you will take when things don’t go to plan.
For instance, based on your initial analysis, the market is trending up. So, you plan to hold a long position, but then there are strong indicators that your assumption could be wrong.
In this case, you should have a guide on what to do.
Use technical indicators
Several technical indicators can help you in your trading analysis. Before trading, you should learn how to use them and for what.
Here are some examples of indicators.
The moving average gives you real-time updates on the average movement of prices. It tells you the current direction of the prices.
The moving average can also give insight into the volatility of the market.
The moving average is a single moving line on the chart.
If the line comes near or goes through the currency price, it means there is low volatility. And the opposite is true if the line moves away from the price.
There are three kinds of a moving average.
· Weighted moving average (WMA)
· Simple moving average (SMA)
· Exponential moving average (EMA)
Average True Range (ATR)
The average true range shows the mean trading range over a given period.
It can also determine volatility.
If the ATR rises, the more volatile the market becomes. But if the ATR falls, the market becomes less volatile.
The Bolinger bands is a masterpiece of John Bollinger.
It’s composed of three lines that can measure the volatility of currency prices over a given period.
The first line is the inner line. It measures the simple moving average of currency prices.
The other two lines are the proper Bollinger bands. The run is below and above the SMA.
They have placed two standard deviations away from the moving average.
The bands indicate the current market volatility.
If the outer bands dilate, the volatility is high. But if they contract, the volatility is low.
Keep up to date with correlated currencies.
Currency pairs are affected by their correlated currencies.
Currency correlation can be negative or positive.
Positively correlated currency pairs move in the same direction. It means that if one rises in rate the other pair also rises.
The AUD/USD has a positive correlation with EUR/USD and NZD/USD.
Negatively correlated currency pairs do the opposite. When the rate of a currency pair falls, the rate of other currency pairs rises.
The ADU/USD is negatively correlated with USD/JPY, USD/CAD, and USD/CHF. The main reason is that in the latter currency pairs, the USD is the base currency.
Keep track of commodity prices.
The Australian Dollar is a commodity currency. This type of currency is reliant on the prices of goods on the market.
Export trade is the main driving force behind the Aussie economy. It’s the main reason why the rise and fall in prices of goods highly affect its currency rate.
Prices of goods are frequently moving up and down. It depends on the current rate of supply and demand.
What can affect the AUDUSD exchange rate?
Currency exchange rates are subject to changes every minute. The changes are a result of various geopolitical and economic factors.
A higher interest rating will encourage foreign investors. It increases demand for the local currency, which also increases its value.
Prices of Goods
Since Australia is a top exporter of various goods, its economy is highly dependent on price.
If the global market price of its products rises, the value of its currency will also increase.
A low employment rate will increase positive economic activity.
Take, for instance, the unexpected fall of unemployment in Japan in 2018. The rate plummeted to 2.4%.
If this should happen to Australia, the AUD will increase in value against the USD.
Gross National Product
GDP is the sum of the overall annual value of goods and services of a country.
The GDP is a vital indicator of economic performance.
More developed countries have a higher GDP. It pulls their currency rates up.
The Australian economy is ranked 14th in the world when it copes to size. Its GDP is comprised largely of exported minerals and grains.
US and Aussie trade relations
In 2005, the Australia-United States Free Trade Agreement or AUSFTA was signed by both countries.
It defined their trading relationship. After it took effect, the percentage of goods exported from Australia to the US rose over 91%.
Australia and the United States both have stable and developed economies. Needless to say, trading the AUD/USD is not without challenges.
The key is to use all available resources in making a comprehensive analysis. It will help you make a solid trading plan.