8/7/2019 AUD/USD – Bucking Across the Pacific

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AUD/USD – Bucking Across the Pacific

The AUD/USD trade is a unique and dynamic one in the world of forex. TheAUD/USD currency pair is one of the most traded on the market. In order to corner 

every angle of this trade it is important to analyze the AUD/USD chart on the micro level

and also to stay aware of the macroeconomic variables that affect these two currencies.

The tools for analyzing the AUD/USD chart are the rate of change indicator, the

directional movement indicator, the parabolic SAR indicator, moving average indicators,the stochastic oscillator, and the relative strength index:

• The rate of change indicator evaluates the value differential of a currency over 

two different time intervals. This can be helpful when one is comparing theAustralian dollar and the US dollar to other currencies over a given time period

in which a certain event occurred that affected the market (and you wish to

compare how they reacted).

• The directional movement indicator produces a calculation called the average

directional movement index (ADX). The ADX is a measure of strength andtrending. An ADX of 20 or higher is good indicator that the currency is trending

high (upward).

• The parabolic SAR indicator is a calculated prediction for changes in the chart.

The calculation is designed to determine when the curve (parabola) of the

currency chart will reverse its direction (“Stop and Reverse”).

• Moving average indicators also help measure trending. The moving average is

meant to aid by calculating the average value of the currency amongst all the

volatility in order to understand if it is trending upward or downward. This

calculation tends to lag; therefore, it is recommended to use multiple movingaverage indicators and to cross-reference them with other indicators.

• The stochastic oscillator helps determine market trends as well. Taking intoaccount peak values and closing values, the stochastic oscillator looks at fourteen

denominations of time (hours, days, or weeks…) with the assumption that

trending markets close in compliment with the trend. The calculation results in a

number between 0 and 100. A score of 80 and above can mean the currency isreaching the end of an upward trend, and a score of 20 or below can mean that a

currency is reaching the end of a downward trend.

• The relative strength index (RSI) is an indicator of momentum that is used todetermine of a currency has been overbought or oversold (and is therefore riding

momentum). A currency that is riding momentum is sure to change direction

shortly. The RSI produces a score between 0 and 100. A score of 70 and above

generally indicates overbuying, and a score of 30 and below generally signalsthat the currency is undervalued and is a good buy.

Other Factors that Affect Trading AUD/USD Pairs

Chart analysis only words while simultaneously taking into account the factorsthat can affect the AUD/USD trade on a macroeconomic level. Some of the key

8/7/2019 AUD/USD – Bucking Across the Pacific

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macroeconomic factors that affect the currency trade are gross domestic product (GDP),

interest rate, budget deficit, consumer price index (CPI), balance of trade, commodities,

and other related currency pairs.

• GDP is the sum total of all goods and services produced by a country. The GDP

directly reflects the fiscal status of that country, and therefore is a great positively

correlative indicator of the value of the currency.• The interest rate, as set by the central bank, will greatly affect currency values.

When trading AUD/USD one must compare the interest rate set by the Reserve

Bank of Australia against the interest rate set by the US Federal Reserve. Highinterest rates generate an attractive environment for investors and cause currency

values to rise.

• The budget deficit is a double edged sword. On the one hand, public debt beingowned by foreign governments is bad for the economy and bad for currency

value. However, on the other hand, central banks will respond to deficits by

raising interest rates (which causes currency to appreciate in value).

• The CPI is a calculation of how much average households are spending on

everyday goods and services. The higher CPI is, the higher inflation is, and thehigher inflation is, the lower the comparative value of the currency is.

• Balance of trade is the balance between imports and exports. If the exports

exceed the imports (a trade surplus) the currency will be strong. If the imports

exceed the exports (a trade deficit), it is a sign of a weak economy.

• Commodities generally have a negative correlation to the value of currency.Specifically, gold is known to have a negative correlation to the value of the US

dollar. Since Australia exports gold, this commodity has an especially strong

impact on the AUD/USD trade. (There is a strong positive correlation betweenthe value of gold and the AUD/USD). Additionally, rising oil prices can have a

negative impact on the USD.

• The other related currency pairs that most impact the AUD/USD are USD/CAD,USD/CHF and USD/JPY. The AUD USD has a negative correlation with

aforementioned currency pairs.

Properly analyzing the AUD/USD charts while staying on top of all the latest

news with regard to the macroeconomic indicators that affect this foreign exchange

currency pair is a sure fire way to make the bucks in this cross-pacific trade.

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