AUD

What Is AUD?

AUD is the abbreviation for the Australian dollar. In the international currency market, the Australian dollar is also known as the Aussie dollar or just the Aussie. The AUD replaced the Australian pound in 1966.

The Australian dollar is the official currency in Australia and in several independent countries and territories in the South Pacific, including Papua New Guinea, Christmas Island, the Cocos Islands, Nauru, Tuvalu, and Norfolk Island.

The AUD became a free-floating currency in 1983. Its popularity among traders is due to various factors related to geology, geography, and government policy. Namely, Australia is among the richest countries in the world in terms of natural resources, including metals, coal, diamonds, meat, and wool.

Understanding the AUD/USD Pair

The AUD, in various pairs, is one of the world’s top-traded currencies. It most frequently trades versus the U.S. dollar (USD). Currencies always trade in pairs, with each part of the pair represented by a three-letter abbreviation.

The AUD/USD currency pair tends to be negatively correlated with the USD/CAD (the Canadian dollar), as well as the USD/JPY (the Japanese yen) pair, largely because the dollar is the quote currency in these cases. In particular, the AUD/USD pair often runs counter to the USD/CAD, as both AUD and CAD are commodity block currencies.

Like most currencies, the AUD moves versus other currencies due to economic data releases, including the country’s gross domestic product (GDP), retail sales, industrial production, inflation, and trade balances. Natural disasters, elections, and government policy also affect the relative price of AUD, as well as output and market price for various metals and crops.

In addition, demand for natural resources, especially from other Asian countries, such as China and India, affect AUD exchange rates.

Investor Interest in the AUD

The Australian economy and the AUD often benefit during periods of rising commodity prices. In comparison, the U.S. and other countries that produce many finished goods tend to see inflation amid rising commodity prices. When this happens, their currencies weaken versus the AUD. This sometimes invites traders to take a long position in AUD relative to USD.

Th AUD also benefits from Australia’s typically conservative monetary policy. For instance, the Reserve Bank of Australia did not intervene with economic stimulus to the same degree as the U.S., European Central Bank, and the Bank of Japan following the Great Recession. This contributed to higher interest rates in Australia relative to other countries, inviting currency trades to long AUD relative to JPY, for instance, based on the interest-rate differential between these countries. This became one of the most popular currency carry trades of the era.