Top Reasons to Buy AUD/USD

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AUD/USD is one of the major currency pairs. It is strongly tied to commodities and has traditionally been used as a carry trade vehicle. Here are some key facts you should know before you invest in it. As the name suggests, it is the Australian dollar. However, its strong link to commodities makes it a risky bet for beginners. Despite the risks, it has some benefits that make it well worth considering. Here are the top reasons to buy AUD/USD:

AUD/USD is a major currency pair

The AUD/USD is one of the most commonly traded forex pairs. It accounts for around five percent of the fx market's volume. The currency pair is influenced by Australia-US trade relations. The US and Australia are trusted trading partners, with the latter receiving 860.9 billion dollars in investment each year. The AUD/USD is also influenced by the Australia-United States Free Trade Agreement, which came into effect in 2005. In addition, since the AU/USD currency pair has been a popular trading currency, the US dollar has increased its exports to Australia by 91%.

It has a strong link to commodities

Australia is the third-largest gold producer in the world, and as a result the Aussie is correlated very strongly with gold. In fact, historical data indicates that the Aussie and gold have an 80.0% positive correlation. The government has attempted to reduce its dependence on the commodity sector, and this has resulted in the currency decoupling from commodities. With the global roll-out of vaccines expected to start in late 2020, the Australian dollar should be in better shape than it is right now.

It is a traditional financial instrument

While cryptocurrency is a popular alternative to the Australian Dollar, the risks associated with trading the AUD/USD are generally lower than those involved with cryptocurrencies. As a conventional financial instrument, the AUD/USD is an attractive candidate for active trade, as it is supported by governments. But before we get into the benefits and risks of trading the AUD/USD, let's understand its fundamentals. As it is the official currency of mainland Australia, it is legal tender in many regions and municipalities, including the Cocos (Keeling) Islands, Christmas Island, Kiribati, Nauru, and Norfolk Island. As one of the eight major currencies in the world, the AUD/USD is often traded in tandem with the USD, the GBP, and the JPY.

It is a carry trade vehicle

A carry trade is a type of derivatives trading in which one borrows in one currency and invests in another. Carry trades are profitable over the long run because the returns are relatively low compared to other asset classes. However, this strategy can be very volatile if the underlying asset loses value, as it can if the stock market crashes and investors begin fleeing risky currencies in favor of the low-yielding dollar.

It is a commodity currency

The Australian dollar, otherwise known as the Aussie, has increased in popularity over the past several years. It is often higher yielding than other currencies in developed markets, and its strong connection to commodities makes it a popular currency among investors. Considering Australia is a large exporter of commodities and has growing trade relations with Asia, the Aussie is often referred to as a commodity currency. The most common AUD cross is AUD/USD, which translates to US dollar.

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