AUDUSD Correlation | A Top Currency Pair to Trade via CFD

Correlations between the world's most heavily traded commodities and currency pairs are common. For example, the Canadian dollar (CAD) is correlated to oil prices due to exporting, while Japan is susceptible to oil prices because it imports most of its oil. Similarly, Australia (AUD) and New Zealand (NZD) have a close relationship to gold prices and oil prices. The Australian dollar/U.S. dollar (AUDUSD) currency pairing is one of the most volatile currency pairs in the financial markets.

From a volume-traded perspective, both are classified as major global currencies. This currency pair is ranked as the sixth highest pair for trading in the world, accounting for around 7% of all worldwide currency trades annually.

Facts about the U.S. dollar

The dollar is the legal tender in the United States –the country where it is minted- but also of other countries such as Ecuador, El Salvador or Zimbabwe. Also The U.S. dollar is the major currency in the world and on the Forex market. Its transactions are accepted across the globe. It is a benchmark currency for all Forex traders. Each day over $5 trillion are in circulation on the international exchange market.

The U.S. dollar continues to be impressively stable over the years. It has never experienced devaluation or hyper-inflation. This is why countries find it attractive to use the USD as a reserve currency. It assures hedging against inflation and provides a secure and stable economic environment.

Trading currencies with the USD is common thing for Forex traders. In fact, AUDUSD, EURUSD, GBPAUD, USDJPY, USDCAD, USDCNY, GBPINR are the most trader currency pairs.

Facts about the Aussie

The Australian dollar, also called the Aussie, is the 5th most traded currency in the world. It is known as a commodity currency due to its substantial raw material exports. As a result, the AUD is affected by China and other Asian import markets.

The Australian dollar has a positive correlation to the Canadian dollar (CAD) as both countries are commodity-rich exporters with similar economic structures.

A AUD/USD pair driven by commodities

One of the major forex pairs on the global market, AUD to USD – also called the Aussie – has seen its popularity with traders increase in recent years. AUDUSD is considered to be a commodity pairing, which involves currencies from countries that have large quantities of raw materials. This currency pair is highly dependent on gold which is the commodity that serves as its catalyst.

The impact of gold pricing is very different on each currency. In terms of the US dollar (USD), gold has an inverse relationship. Contrary to the appreciating value of the Australian dollar (AUD), which is positively associated with robust gold pricing.

In addition to being commodity driven, AUD against USD has been a vehicle by which to execute a carry trade. A carry trade is one in which an individual borrows money at a low interest rate and reinvests the borrowed capital in an asset that will provide a larger return.

How it appeals to investors

Traders and investors are attracted to the AUDUSD currency pair because of several reasons. First is the liquidity of the pair which appeals to intraday traders who are looking to implement strategies aimed at profiting from short-term exchange rate fluctuations. And second, investors who take positions in the AUD/USD has a goal of achieving long term capital appreciation.

The interest rate set by the Reserve Bank of Australia (RBA) has been among the highest in the industrialized countries and the relatively high liquidity of the AUD has made it an attractive tool for traders looking for a currency with the high potential. These factors made the AUD very popular among forex investors.