AUD/USD and its link to commodities

AUD/USD is called a commodity currency for a very concrete reason: the Australian economy leans
heavily on resource exports. That creates relationships you can watch before they show up in the
exchange rate.

1. Three main links

Iron ore and China

Iron ore is Australia’s largest export and China is its largest customer. Weakening Chinese
construction demand tends to pull the Aussie down before any Australian data reflects
it.

Useful leading indicators: China’s
manufacturing PMI and the iron ore price.

Global risk appetite

The Aussie is a cyclical currency — strong when markets are optimistic, weak when they are afraid.
In global sell-offs it is usually among the hardest-hit currencies.

That gives AUD/USD a high correlation with equity
indices, sometimes higher than its correlation with Australian economic data.

Interest rate differentials

As with every pair, rate expectations at the two central banks are the underlying driver. The
Reserve Bank of Australia meets more often than many central banks, so this pair has a denser event
calendar.

2. What that means for diversification

Because the Aussie tracks risk appetite, holding AUD/USD alongside other risk-on positions (long
equity indices, long other cyclical currencies) is not diversification. It is the same
bet, placed several times.

Moving together: AUD, NZD, CAD and equity indices. Moving the other way: JPY, CHF, and often the
dollar.

3. Trading characteristics

• Daily range is usually smaller than
  EUR/USD in pips, but the pair tends to produce long
  trending drifts.
• Spread is a little wider than EUR/USD, typically 1.0–1.8 pips on a Standard
  account.
• The best hours are the Asian session,
  roughly 23:00–06:00 UTC. A real advantage for anyone whose daytime falls in that window.

4. The data calendar

• RBA rate decisions — usually early in the month, during Asian hours.
• Australian employment — monthly, and usually good for a clear move.
• Australian CPI — quarterly, so each release carries more weight than a monthly
  one would.
• Chinese data — PMI, GDP, trade
  figures. For this pair, Chinese news is sometimes more important than Australian news.

5. About NZD/USD

NZD/USD behaves very much like AUD/USD, with a correlation usually above 0.8. Trading both in the
same direction doubles the risk rather than spreading it. Choose one, preferring whichever has the
better spread at your broker — usually AUD/USD.

This article is for information only and is not investment advice. Conditions and fee levels are published by the brokers and can change at any time — check with the broker you actually use. Leveraged forex and CFD trading carries a high level of risk and can cost you your entire deposit.