AUD/USD is one of the most traded forex currency pairs, making up about 5.2% of the entire forex market. It is also among the most liquid pairs and ranks in the top four currency pairs by daily trading volume.
As this currency pair becomes more desirable to trade, traders want to know the ins and outs of how to take full advantage of its price movements. While the Reserve Bank of Australia (RBA) and the U.S. Federal Reserve (Fed) directly impact AUD/USD, China’s economic condition also has a huge influence.
Moreover, to profit from this currency pair, traders need to keep a keen focus on technical and fundamental analysis and understand key support and resistance levels well.
There’s more to know about this currency pair. Today, let’s talk about what the AUD/USD currency pair is, how it works, what factors impact it, and some tips and strategies.
What Is the AUD/USD Currency Pair and How Does It Work?
The AUD/USD currency pair is the exchange rate between the Australian dollar (AUD) and the United States dollar (USD). It shows how many US dollars are needed to buy one Australian dollar. In forex trading, it’s known as a “major” currency pair because the US dollar is involved.
Traders also call it “the Aussie.” It is one of the most traded. The AUD is a “commodity currency” because Australia exports a lot of raw materials, so its value often tracks commodity cycles. The USD is the world’s main reserve and a common safe-haven currency. This mix makes AUD/USD popular for traders who want exposure to Australia’s export economy while staying anchored to the global U.S. dollar.
AUD/USD Currency Pair Characteristics
The AUD/USD currency pair is highly volatile and highly liquid, commodity-driven, influenced by global risk sentiment, and China’s economy. Here are some major characteristics:
1. High volatility: More volatile than other major currency pairs due to sensitivity to commodity prices, especially iron ore, coal, and gold.
2. Commodity-driven: Economic releases affecting commodity demand directly influence AUD value.
3. Risk sentiment influence: Acts as a pro-cyclical currency, rising when global sentiment is bullish and commodity demand increases, and falling when sentiment turns bearish.
4. China dependency: Strongly influenced by China’s economy, as 36.4% of Australia’s exports go there (2019–20 data).
5. High liquidity: Accounts for 5.1% of global forex trading volume, offering tight spreads, low costs, and fast execution.
6. Correlation with other pairs:
- Positive correlation with NZD/USD.
- Positive correlation with other AUD-based safe-haven pairs like AUD/CHF and AUD/JPY.
- Negative correlation with USD/CAD, as CAD is also commodity-based.
How Does It Work
The way it works is simple: when the AUD/USD rate goes up, it means the Australian dollar is getting stronger compared to the US dollar; when it goes down, the Australian dollar is weakening. Traders buy the pair if they think the AUD will rise in value or sell it if they expect it to fall.
What Factors Impact the Price of AUD/USD?
Major factors that move AUD/USD are commodity prices, the RBA–Fed interest rate gap, China’s demand, global risk mood, and broad U.S. dollar strength.
Global risk sentiment plays a major role in shaping AUD/USD movements. The Australian dollar tends to rise during “risk-on” markets, when investors are confident and more willing to invest in higher-yield assets.
In contrast, it often falls during “risk-off” periods, when investors seek safer assets, at which point the U.S. dollar, a traditional safe haven, usually strengthens.
Another key driver is China’s economic health. As Australia’s largest trading partner, China’s GDP growth, manufacturing activity, and trade data have a direct impact on Australia’s export demand and, therefore, on the AUD.
Finally, broader U.S. dollar strength can significantly influence the pair. When U.S. economic data is strong or global markets seek safety, the USD often rises, pulling AUD/USD lower, and the opposite is true when the USD weakens.
Major factors that move AUD/USD are commodity prices, the RBA–Fed interest rate gap, China’s demand, global risk mood, and broad U.S. dollar strength.
Global risk sentiment plays a major role in shaping AUD/USD movements. The Australian dollar tends to rise during “risk-on” markets, when investors are confident and more willing to invest in higher-yield assets.
In contrast, it often falls during “risk-off” periods, when investors seek safer assets, at which point the U.S. dollar, a traditional safe haven, usually strengthens.
Another key driver is China’s economic health. As Australia’s largest trading partner, China’s GDP growth, manufacturing activity, and trade data have a direct impact on Australia’s export demand and, therefore, on the AUD.
Finally, broader U.S. dollar strength can significantly influence the pair. When U.S. economic data is strong or global markets seek safety, the USD often rises, pulling AUD/USD lower, and the opposite is true when the USD weakens.
How Do the Interest Rate Changes in Australia and the US Affect AUD/USD?
Changes in interest rates in Australia and the U.S. affect AUD/USD by shifting capital flows and altering the demand for the currencies.
When Australian interest rates rise relative to U.S. rates, Australian assets, like government bonds, become more attractive to both foreign and local investors. This increases demand for the Australian dollar and reduces its supply, which makes the AUD stronger against the USD. Conversely, if Australian interest rates fall compared to U.S. rates, demand for the AUD weakens, leading to depreciation.
Source: Drivers of the Australian Dollar Exchange Rate
This mechanism is known as the interest rate differential. This is a major long-term driver of the AUD/USD exchange rate. It influences the flow of money into and out of Australia and, in turn, shapes currency value through both fundamentals and sentiment.
Impact of Commodity Pricing (Iron Ore or Gold) on AUD/USD?
Commodity prices like iron ore and gold influence AUD/USD because Australia is a major exporter of these resources, and higher prices boost the Australian economy and its currency.
Australia’s export earnings are heavily tied to commodities, with iron ore being the largest contributor, followed by coal and gold. When prices for these commodities rise, foreign buyers must purchase more Australian dollars to pay for exports. This increasing demand for AUD often pushes AUD/USD higher. This effect is strong for iron ore, given China’s heavy reliance on it for steel production.
Gold also plays a role; higher gold prices can support AUD because Australia is one of the top gold producers globally.
On the flip side, when commodity prices fall due to lower global demand, economic slowdowns, or oversupply, export revenues shrink. This reduces demand for the Australian dollar. It causes AUD/USD to weaken.
Because commodity prices are influenced by global growth expectations, supply chain dynamics, and geopolitical events, AUD/USD can see sharp movements in response to commodity market shifts.
The Role of China’s Economy in AUD/USD?
China’s economy is one of the most important external drivers of AUD/USD price action because China is Australia’s largest trading partner. China alone accounts for a significant share of its exports of iron ore, coal, and other raw materials.
Commodity Demand: When China’s economy is expanding in sectors like construction and manufacturing, its demand for Australian commodities rises. This boosts Australia’s export revenues, strengthens economic growth, and typically lifts the AUD.
Market Sentiment: Positive Chinese economic data (e.g., GDP growth, industrial production, or PMI figures) often fuels optimism about Australia’s trade outlook, pushing AUD/USD higher. Weak data can have the opposite effect.
Policy Influence: Changes in Chinese monetary or fiscal policy can indirectly affect AUD. For example, stimulus measures to support infrastructure spending usually benefit commodity prices, which in turn support the Aussie.
Risk Appetite: Because the AUD is considered a “risk-on” currency, market sentiment toward China’s growth prospects often impacts global risk appetite, amplifying AUD/USD moves.
China A50 Connection: The China A50 futures index is a useful proxy for AUD/USD traders as it tracks the performance of 50 major Chinese companies, reflecting broader economic conditions. A rising A50 often signals stronger Chinese economic prospects, boosting the AUD, while a falling A50 can pressure it lower.
What Are the Optimal Times to Trade AUD/USD for High Liquidity?
The best times to trade AUD/USD for high liquidity are when the Australian and U.S. trading sessions overlap with other major markets, especially during the Sydney–Tokyo and London–New York overlaps. Liquidity peaks when there’s strong market participation from both sides of the pair, resulting in tighter spreads and lower slippage. This typically occurs during:
- Sydney–Tokyo overlap: 10:00 PM – 2:00 AM GMT
- London–New York overlap: 12:00 PM – 4:00 PM GMT
- Early U.S. session
These periods often see the highest trading volumes, making them optimal for active traders seeking efficient execution.
Key Support and Resistance Levels for AUD/USD
To understand macroeconomic drivers, traders should keep an eye on key support and resistance zones, price levels where AUD/USD historically reacts.
- Support is a price level where buying interest tends to emerge, preventing further declines.
- Resistance is a level where selling interest often caps price advances.
How to Identify Them:
- Look for previous swing highs and lows on daily or 4-hour charts.
- Use round psychological numbers (e.g., 0.7000, 0.7500).
- Combine with tools like Fibonacci retracement or pivot points.
Recent Key Levels (Example):
- Support: 0.6470, 0.6380, 0.6270
- Resistance: 0.6740, 0.6820, 0.6920
Trading Tip: A break above resistance during strong Chinese economic data or rising iron ore prices can signal bullish momentum. Conversely, a break below support in a risk-off environment may confirm further downside.
How to Analyse AUD/USD: Fundamental and Technical Approaches
To understand AUD/USD, traders use two main methods: fundamental analysis to see what’s moving the market and technical analysis to find the best times to trade. Using both gives a clearer view and better trading decisions.
Fundamental Analysis
Fundamental analysis helps traders forecast AUD/USD movements by studying economic, political, and market drivers. Key factors to watch include:
Commodity Prices:
- Australia exports iron ore, coal, gold, oil, natural gas, beef, and wheat.
- Shifts in supply or demand for these goods directly affect the AUD value.
- Track reports from Australia’s Bureau of Agricultural and Resource Economics and Sciences (ABARES) for updates on production and exports.
Economic Releases:
- Important data includes employment numbers, inflation rates, GDP growth, and trade balance statistics for both Australia and the U.S.
- Monitor GDP, manufacturing, and sales data from key Asian trade partners, especially China and Japan.
Monetary Policy:
- The Reserve Bank of Australia (RBA) and the U.S. Federal Reserve influence AUD/USD through interest rate changes and policy statements.
- Example: At the time of writing, Australia’s interest rate is 3.6% versus 5% in the U.S., making the USD more attractive and pressuring the AUD/USD lower.
Geopolitical Events:
- Trade disputes, political developments, and natural disasters can cause volatility.
- Australia’s economic reliance on Asia means regional policies (e.g., China’s zero-COVID policy) can significantly impact AUD/USD.
Technical Analysis
Technical analysis studies price history, patterns, and indicators to identify trading opportunities. Many traders use it to fine-tune entries and exits after setting a directional bias with fundamentals.
Chart Patterns:
- Look for wedges, double tops/bottoms, and flag formations to anticipate price direction.
- Support and Resistance Levels:
- Identify past price turning points to plan optimal entry and exit levels.
Technical Indicators:
- Use tools like the Relative Strength Index (RSI), Bollinger Bands, and moving averages to confirm trends or spot reversals.
Combining Approaches:
- Many traders pair fundamental analysis for market direction with technical analysis for precision timing, creating a balanced AUD/USD strategy.
Which Technical Indicators Work Best for Trading AUD/USD?
When it comes to trading AUD/USD, the “best” indicators depend on how you trade (like day trading or swing trading) and the market’s mood.
Many traders don’t just rely on one tool; they mix a few together to double-check signals and strengthen their strategy. The key is to test things out (backtesting) and practice until you know what works for you.
Here are a few popular indicators:
Moving Averages (like the 50-day and 200-day): Help you see the overall trend.
RSI (Relative Strength Index): Shows if the market might be overbought or oversold.
MACD (Moving Average Convergence Divergence): Points out when a trend could be shifting.
Key Strategies and Tips for Trading AUD/USD
For traders looking to trade the AUD/USD forex pair, having in-depth knowledge and experience and a good forex strategy is important to be successful. Here are some additional tips to help build a stronger trading strategy.
1. Spot Trends with Moving Averages
Moving averages are one of the simplest ways to see where the market is heading.
For example, if the 50-day moving average is above the 200-day moving average, it suggests a longer-term uptrend. On the other hand, when the shorter average dips below the longer one, it can signal a potential downtrend.
Choosing time frames: Day traders might use shorter averages like the 9- or 21-period moving average for quicker signals, while swing traders often rely on longer ones such as the 50- and 200-day for a broader view.
2. Choose the Right Leverage
Leverage can amplify both profits and losses. So traders need to pick the leverage wisely.
Scalpers, who hunt for quick gains from small price moves, may use slightly higher leverage. This is because their positions are open for short periods.
Swing traders, who hold trades for days, go for larger price swings. Thus, they may prefer lower leverage to manage overnight risks.
A common safe range for many traders is between 5:1 and 20:1, depending on experience and risk tolerance.
3. Set an Effective Stop-Loss
Stop-loss orders help protect your capital when the market moves against you. A good stop-loss should be based on market structure, not guesswork.
For example, if you’re buying AUD/USD after a breakout, you may set your stop just below the last support level. This lets enough room for normal price fluctuations without exiting too early.
4. Work Out Your Risk-Reward Ratio
Before entering a trade, calculate your risk-reward ratio: how much you’re willing to lose versus how much you aim to gain. A common benchmark is 1:2. This means for every $1 risked, you want to make $2.
Example: If you set your stop-loss 50 pips away, your target profit should be at least 100 pips to maintain a 1:2 ratio. This ensures that even if some trades fail, your winners can outweigh the losses.
5. Trade Around News Events Wisely
Major news releases, like interest rate decisions from the Reserve Bank of Australia or U.S. jobs data, can trigger big moves in AUD/USD. Breakout traders often watch closely just before these events. They want to catch sudden surges in either direction.
However, news trading carries higher volatility and slippage risk, so it’s best to have a clear plan. This is either placing stop orders in anticipation or waiting for the initial spike to settle before entering.
6. Use the US Dollar Index (DXY) for Extra Insight
The AUD/USD pair is heavily influenced by the strength of the U.S. dollar. The DXY measures the dollar’s value against a basket of currencies. If the DXY is rising, it often signals a stronger USD. This can push AUD/USD lower. Also, if the DXY is falling, AUD/USD may rise. By checking the DXY before trading, you can get an extra confirmation of your bias.
How to Start Trading AUD/USD Using CFDs With FNmarkets?
FNmarkets is a CFD broker offering a diverse range of currency pairs to trade. Starting CFD trading with FNmarkets on your preferred currency pairs, like AUD/USD, is easy. You can get started in just a few steps.
We provide lightning-fast execution and 24/7 human support to make your trading journey smoother. Simply follow these steps to begin:
Choose an Account Type
Pick one of three account options: Standard, Raw, or Islamic, based on your trading style and needs. All start with a minimum deposit of $50 and offer leverage up to 1:500.
Open an Account
Fill in your basic details to set up your trading account.
Onboard in Under 60 Seconds
Complete the quick verification process so you’re ready to trade almost instantly.
Fund Your Account
Use any of the 120+ payment methods, including cards, bank transfers, and crypto. You can easily and quickly fund your account.
Download the Trading Platform
Install MetaTrader 5 (MT5), FNmarkets’ main platform, and enjoy advanced tools, charts, and smooth execution.
Start Trading
With your account funded and platform ready, you can trade AUD/USD CFDs right away.
How To Trade AUD/USD FAQs
Is AUD/USD a good pair to trade?
Yes. It’s one of the most traded currency pairs, with high liquidity and predictable reactions to economic news.
How to trade the AUD/USD pair?
Use a trading platform, analyze market trends, watch key news events, and manage your risk with stop-loss orders.
Which currency pair is most profitable to trade?
There’s no single “most profitable” pair; it depends on your strategy, timing, and risk management. Popular ones include EUR/USD, GBP/USD, and AUD/USD.
How to trade currency pairs for beginners?
Start with a demo account, learn basic analysis (technical and fundamental), and practice strict risk management before trading live.
