The Australian dollar to US dollar is one of the most popular currency pairs on the Forex market. Both, AUD and USD are major global currencies. According to the statistics by the International Bank of Settlements, USD is ranked as the first and AUD as the fifth most frequently traded currencies. This accounts for 88 and 7 per cent of daily forex transactions respectively.
Investors and traders are attracted to AUD/USD for several reasons: the pair’s liquidity draws the attention of intraday traders who want to profit from short-term price fluctuations, while other investors choose it with the aim of achieving long-term capital appreciation.
No matter what strategy you are up to, AUD vs USD remains a lucrative investment option for Forex traders.
AUD/USD analysis: the ‘golden’ FX pair
The currency pair of the Australian dollar vs US dollar is often referred to as a commodity coupling. It means that it consists of currencies from countries with large quantities of raw materials. There are three major commodity pairs in Forex, including: AUD/USD, USD/CAD and USD/NZD.
In the case of the Australian dollar against American dollar, gold is served as a catalyst for the pair’s exchange rate valuation. Both the US and Australia play a significant role in global gold production, holding the second and third place respectively.
However, you should note that gold’s impact on each currency is different. If USD has an inverse relationship with gold, the AUD, conversely, is positively associated with gold pricing. Therefore, the AUD/USD pair tends to show a long-term positive correlation to the price of gold.
AUD/USD analysis: China sneezes, Australia gets a cold
The state of the Australian economy as well as the AUD rate strongly depend on its Asian neighbour – China, as most of Australian exports are shipped to China.
The US-China trade war exacted a heavy toll on the Australian economy. In October 2019, the AUD/USD pair fell to a decade-long low of 0.6670. At the time of writing, January 8, 2020, the AUD/USD exchange rate hovers around 0.6870.
However, hopes on the trade war front proliferate. Although it took almost two years to reach an agreement, by the end of 2019 the US and China announced that phase one of a trade deal is underway and will be signed “very shortly”, according to US President Donald Trump.
The trade tensions relief boost the market’s sentiment. The more progress in the US-China relationship, the higher chances the commodity-driven Australia will get economically stronger.
AUD/USD analysis: hopes on de-escalation of US-Iran tensions
Lately, US-Iran geopolitical risk has been fuelling the Australian dollar volatility. The tensions between Iran and the US were escalated by the US air strike ordered by Trump, which killed Iran’s most powerful military commander – General Qassem Soleimani.
The Aussie faced strong selling pressure after Iran's retaliatory attack on US air bases in Iraq. The conflict sent the Australian dollar lower, pushing traders and investors away from perceived riskier currencies. Volatility in the US dollar is also set to continue with the increase in Middle East tensions.
Some of the latest news reports have triggered hopes on de-escalation, however. President Trump described the damage caused by Iran’s recent missile attack as “negligible” and Iran confirmed that it will stop attacks if there is no further response from the US side. Consequently, AUD to USD predictions turned positive with risk sentiment improving.
According to the recent FXStreet survey, the Aussie enjoys a modest bullish bias. Analysing the AUD to USD forecast poll 2020, experts suggest the average AUD/USD exchange rate in 2020 will be 0.6969 in the first half of 2020 and will reach 0.7000 by the end of 2020.
On the contrary, the AUD/USD pair is considered a bad long-term investment, according to forecasts by Walletinvestor. Another analytical resource audtoday.com has also expressed bearish Australian dollar to US dollar predictions. According to their analysis, the AUD/USD pair will gradually decline from 0.702 In January 2020 to 0.598 in December 2021.
What you need to know about AUD/USD investing
Despite all the bullish and bearish views expressed by analysts, the AUD/USD remains the fourth most traded currency pair on the Forex market. Widespread use makes this pairing highly liquid and popular among traders.
The Aussie often serves as an effective vehicle to gain exposure to the emerging Asian markets. Day traders resort to the AUD/USD pairing due to its high levels of volume and volatility caused by the disparity in interest rates between the two nations.
In order to better understand what affects the AUD/USD exchange rate and make thorough trading decision, you should consider some key drivers that can boost extreme Australian dollar to US dollar fluctuations:
The AUD/USD rate depends greatly on interest rate decisions, made by the Reserve Bank of Australia (RBA) on the one hand and the US federal Reserve on the other.
Today, the severity of the Australian wildfires and slowdown of the country’s employment rate has pushed the RBA to cut rates to a record low of 0.75 per cent. If the Fed were to increase the interest rate, it will strengthen the US dollar consequently weakening the AUD/USD rate.
Other important factors influencing the AUD/USD exchange rate include the Australia-United States trade relations, global oil and gold prices, US-China trade tensions among other global geopolitical risks.
If you choose to trade CFDs on the AUD/USD pair, it does not matter whether your AUD to USD forecast is positive or negative. You can profit from the AUD/USD future price fluctuations, regardless of their direction.
Please note that in cases of leveraged products such as CFDs, gains, as well as losses can be magnified. Learn more about CFD trading with free online courses and follow the Australian dollar vs US dollar price rate in real time with Capital.com.
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.