This article looks at the changes that may be brought about by the introduction of the Australian Dollar in the world of forextrading. For simplicity, anyone who is interested in forex can now consider the most widely traded currency pairs around, the USDCAD, GBPUSD and NZDUSD. The author will also show how to get the best times to trade all other forex currency pairs not covered in this article. You will gain an understanding of the dynamic nature of the forex market and why just one currency can suddenly surge in value in relation to another.
In a recent study prepared by BMO FX, the USDCAD was determined to be the best out of three major Canadian dollar currency pairs. The study looked closely at the relationship between the USDCAD and Canadian dollar. It showed that when the Canadian dollar strengthened versus the USDCAD in response to the lower Canadian dollar, so did the volatility of the AUDUSD. This study looked primarily at two different scenarios, where in one scenario Canadian dollars were increasing in value while the other scenario was seeing them decline.
One of the things that most eurusD members have realized is that they cannot depend solely on BMO FX’s research when it comes to determining the strength of their AUDUSD and GBPUSD. If you have done any research at all on the two currencies you should realize that they are very much alike in nature. They both move with a similar rhythm and are affected by similar economic and political factors. It is difficult to determine which one is more powerful at present given the current global conditions.
In order to help you determine whether the Euro or the US dollar is stronger right now, it is important to know more about the relationships between the two currencies. The Euro against the US dollar is stronger than most major world currencies and is considered as a major strength within the European Union. Most of the European Union’s major economies rely on exports to the US and Canada and the recent spat between the US and European Union over lumber trade made this even more evident. In addition, the EURUSD is considered a strong currency versus the euro, so if the US dollar weakens while the EURUSD strengthens, it would be considered a negative divergence for the gurus.
On the other hand, a divergence may occur if the US dollar strengthened versus the euro against the GBPUSD. This is what happened recently in the US during the height of the global recession and is something that has been predicted by market analysts for some time now. If the US dollar strengthened versus the euro the eurusD could be vulnerable to a “sell-off”. This is typically characterized by a stock price falling for a period of time before recovering which then usually leads to a consolidation back to normal.
While the EURUSD is seen as having significant long-term benefits compared to the AUDUSD in the trading markets, the Australian dollar still has substantial long-term advantages over the euro. The AUS Dollar is the only major economic currency that is not recognized as an official currency by the World Wide Organization (WTO). The AUS Dollar has the highest exchange rate among all major currencies and is also a majorly stronger economy than the euro. If the US dollar weakens versus the AUS Dollar, the effect is that it drives down the euro in order to make the pair of currencies equivalent in strength. This is typically beneficial for those investing in the AUS Dollar, but a possible downside for those trading the EURUSD.
As a side note, the current economic situation in Japan is a major cause for worry in the international trading environment. On October 31st, the Japanese government announced that the economy will experience two more years of deflation and the effects will be felt in the foreign exchange market as well. The current decline in the Japanese yen has had a major impact on the euro and other major currencies, as it has driven up the cost of the currencies needed to make trades. Currently, the EURUSD is outperforming the AUS Dollar, however, the AUS Dollar is slightly cheaper than the Japanese yen, which makes the EURUSD the better investment vehicle at this time. Over the last year, the EURUSD has strengthened significantly in response to the developments in the financial markets and this trend should continue. In fact, most forex trading experts are predicting that the EURUSD will soon out-perform the AUS Dollar in a negative light.
One final reason that the EURUSD is viewed as a strong currency pair is because of the strong euro based economies of Germany and Italy. These two countries together with the rest of the European Union are viewed as having surplus spending power. It is for this reason that the euro has been the most successful global currency during the last decade, and the United States dollar has lagged far behind. Even though the United States economy is in a tailspin, the EURUSD has been able to weather the storm and is currently rising on a daily basis versus the AUS Dollar.