AUDUSD – Have You invested in the Right Currency?
The Asian and European currencies that are now being considered as global reserve currencies are the U.S. Dollar (USD), Euro (EUR), British Pound (GBP) and Japanese Yen (JPY). It is only a matter of time before the CAD (Canadian Dollar) and AUD (Australian Dollar) are included in this list. These three currencies have all risen over the past couple of years at a strong pace. They have broken through and surpassed the previously held views about their position in the world market.
When considering international markets, it is a good idea to first consider the Euro. In fact, there are four of them and they are, France’s franc (Fr), Swedish Krona (a), Denmark’s krone (DKK) and the Dutch Guilder (EGP). If one considers the EURUSD, which is the one we are considering in this article, the U.S. dollar is now being sold for almost four Euro’s. The EURUSD is always shown as a green bar on the Forex market.
The British Pound has always been the forerunner of the Euro and the USD so is usually shown as the Kr. However, the Kr. Dollar has now passed the GBPUSD and is shown as the GBDUSD. Of course the GBDUSD is far more stable than the GBPUSD.
Over the past couple of years, the Euro and the USD have both continued to appreciate at rates that are steadily increasing as well. As a result, the AUDUSD is just about the same level as the EURUSD. Even though the AUDUSD has decreased in value against the USD, it is still the most liquid of all the currencies and is considered as the leading choice for hedging purposes.
A word of caution is needed regarding the EURUSD. The euro has a problem with deflation. The Euro is relatively new currency so when the countries around the globe are increasing the competitiveness in their economies it makes the Euro depreciate against the USD.
At times, the euro may depreciate against the USD as well and this causes the USD to rise. It is best to simply use the EURUSD as a hedge when this occurs as it tends to be quite stable in the longer term. Indeed, if the EURUSD depreciates versus the USD then the AUDUSD will move higher as a result.
In the future, as the U.S. Dollar continues to strengthen and if the Euro gets stronger as well, then it would make sense to consider the EURUSD as a hedge and this is exactly what the markets are showing right now. The EURUSD is up a very impressive 2.5% against the USD. As the U.S. Dollar strengthens further, then this means that the AUDUSD will continue to strengthen.
As always, it would be very wise to be aware of the currencies that you are considering in your currency trading strategy. The EURUSD, and other currencies, such as the GBPUSD, are bound to have movements in relation to the performance of the U.S. Dollar in the future.
In addition, it would be wise to use currencies that are part of the IMF. While this may seem like a “no brainer” or that it would be a good idea to use currencies that are part of the IMF because they are widely accepted, it really is not, especially if you are dealing with currencies that are traded in the open market.
At times, the market can be flooded with this kind of currency and these can potentially be pretty volatile in the future and this makes it difficult to predict exactly where the dollar will go and the EURUSD is certainly a prime example of this. Therefore, the best thing to do is to use a currency that is traded in the open market.
The Euro and theUSDCAD are both trading free float (free from government intervention) and this makes them very popular. Finally, while it may be the case that the price for the AUDUSD will appreciate against the Euro, there is a danger of the AUDUSD being manipulated by the European Central Bank, the ECB (European Central Bank) in particular.
It is always best to understand that the EURUSD is never likely to fall as much as the EURUSD as a result of a significant increase in the U.S. Dollar strength. This is because the AUDUSD is undervalued and is an undervalued currency at present.