Forex is one of the most popular instruments for Australian traders, I started my career in the financial markets as a FX trader and have been in this industry for the past 11 years.
The charm of being a forex trader is not only the joy of winning a trade but also the continuous learning process about the market. I see trading as a way of training my mentality, persistence, determination, and a comprehensive understanding of economy, psychology, history, and politics. Hence, a good selection of currency pairs can be something that helps you to embark on this journey.
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AUD/USD
I like AUD/USD because it is one of the most traded major currency pairs due to its high liquidity and large trading volume, offering the benefit of low costs compared with cross pairs that do not involve the US dollar.
AUDUSD often presents insightful signals on its chart, making it particularly well-suited for a technical trader like me.
In addition, the value of the Australian dollar is often linked to the country’s economic trajectory, and it is considered a typical commodity currency. Hence, commodities such as iron ore, copper, and lithium prices have a major impact the Australian dollar’s value.
However, the US dollar, often referred to as the “king dollar”, dominates the currency markets. AUD/USD trended up during the US Fed’s rate cut cycle, conversely, the Aussie dollar usually reverses its uptrend against the greenback when the Fed starts a rate hike cycle.
AUD/JPY
AUD/JPY is probably one of my favourite currency pairs due to opportunities in carry trade. The divergence in policy stances between the Reserve Bank of Australia and the Bank of Japan can offer a strategy that benefits from the rate differential between the two currencies.
Carry trade involves borrowing a currency with a low interest rate and using it to invest in a currency with a higher interest rate. The Bank of Japan implemented its negative interest rate policy in 2016, providing potential for currency traders to adopt the carry trade strategy.
However, the strategy is profitable only when the pair moves in an uptrend. On the flip side, the Japanese Yen is often considered a safe-haven currency and tends to surge during crisis times, such as the dot-com bubble in 2000, the GFC in 2008, and the pandemic in 2020. The Australian dollar is perceived as a riskier currency due to its ties with commodity prices. Hence, this pair experienced a downturn during the financial crisis, offering an opposite trading opportunity.
AUD/NZD
I enjoy trading AUD/NZD, given its comparatively stable nature compared to other currency pairs. This stability makes it safer for establishing long-term positions compared to the more volatile pairs.
The Australian dollar against the New Zealand dollar has observed patterns in its movement. The Aussie dollar generally holds a higher value than its trans-Tasman peer due to the larger size of the economy. Historically, whenever the pair dropped to a parity level (1:1), it consistently bounced back since 1997.
Additionally, the two countries are close trading partners, but their central banks are not always aligned in their monetary policy, potentially causing volatility in this pair. The Reserve Bank of Australia leans more dovish than the Reserve Bank of New Zealand does during an economic downturn, leading to a decline in the pair. Conversely, the pair tends to during times of economic prosperity.
Disclaimer: This is not investment advice and should be read as general information.
Tina was a Market Analyst at CMC Markets from 2015 to 2024, providing client education, market commentary, and media presentations. She specializes in technical analysis and market fundamentals. Tina believes financial markets comprise a vast area reflecting economies, politics, history, psychology, and philosophy. As a result, her analysis is based on her interpretation of a specific country’s economic and historical background, alongside investor sentiment and behaviour.
Tina’s expertise has garnered recognition, with her commentary frequently quoted by reputable sources like Bloomberg, CNBC, Routers, WSJ, and AFR. Her insights span a diverse spectrum, covering various financial domains, including stock markets, foreign exchange, commodities, and cryptocurrencies. Previously, she also spent significant time with China Central Television. This experience allowed her to develop a deep understanding and insight into China’s economics and business.
