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Trading AUDUSD: Strategy For The Aussie Forex Currency Pair (Python Code)

AUDUSD is one of the most popular currency pairs for trading in the forex market. Forex is not easy to trade and make money on, but this article provides an example of a trading strategy with trading rules and performance. Moreover, we offer you the complete Python code for the strategy and trading rules in plain English. It might help you generate some trading ideas for forex trading.

Can you make money in the ‘Aussie’ market, specifically focusing on trading AUDUSD?

Table of contents:

Key Takeaways

  • Trading AUD/USD might necessitate a combination of technical analysis, awareness of economic fundamentals, and risk management, particularly utilizing strategies like the carry trade to leverage interest rate differentials.
  • The AUD/USD, often affected by commodity prices and economic reports from both countries, experiences high liquidity and volatility, making it a favorite among traders for various strategies, including scalping and using leverage despite associated risks.
  • Optimal trading times for AUD/USD are during the overlap of European and North American market hours; and for strategies like carry trade, central bank policies, interest rate differentials, and macroeconomic events are significant influencers.
  • We make a quantified trading strategy with trading rules in plain English and Python code – trading performance included.

What is the best trading strategy for AUDUSD?

There is no best trading strategy for the AUDUSD because a strategy can serve multiple purposes. Absolute returns might not be the appropriate evaluation of a good strategy because you need to look at how your strategy complements your other strategies. Hence, in the trade of AUD/USD, you need to employ a holistic approach to determine its success.

Currency and forex traders might benefit from integrating technical analysis with economic indicators to craft an effective forex trading strategy. A central component for this strategy might include leveraging carry trades that take advantage of the difference between interest rates set by Australia’s Reserve Bank and those determined by the US Federal Reserve.

Typically, from our understanding, forex traders use various aspects, including:

  • The daily chart where they look at indicators such as the 38.2% Fibonacci retracement level, which often serves as a hot spot contestable by both buyers and sellers
  • Correlations between commodity prices and interest rates also play into specific trading rules.

We are no fans of vague technical analysis, and below, we have made a strategy example that uses two simple trading rules that you can backtest and quantify into a backtest to determine how it has performed in the past.

Here it is:

AUDUSD trading strategy – Rules, backtest, performance, Python code

We made a profitable AUDUSD trading strategy with complete trading rules and backtested it to calculate its performance.

The two trading rules read like this:

THIS SECTION IS FOR MEMBERS ONLY. _________________ Click Here To Get Access Click Here To Get Access To Trading Rules

When we apply the two trading rules to the spot price, which we downloaded from Yahoo!Finance (AUDUSD=x), we get the following equity curve from 2009 until today:

AUDUSD trading strategy
AUDUSD trading strategy

Let’s look at the performance metrics:

  • CAGR 2.72% vs. -0.39% buy and hold
  • Time spent in the market was 25.12%
  • Risk-adjusted return was 10.82%
  • Maximum drawdown was -9.37% vs. -47.96%

Let’s look more in detail at the two variables and see how sensitive they are to changes.

THIS SECTION IS FOR MEMBERS ONLY. _________________ Click Here To Get Access Click Here To Get Access To Trading Rules
AUDUSD trading strategy rules
AUDUSD trading strategy rules

As you can see, no matter the length we get decent results.

Let’s look at the second variable:

THIS SECTION IS FOR MEMBERS ONLY. _________________ Click Here To Get Access Click Here To Get Access To Trading Rules
AUDUSD trading strategy performance and returns
AUDUSD trading strategy performance and returns

A shorter value/settings perform better than higher values.

For your convenience, we provide you with the complete Python code with no paywall:

AUDUSD trading strategy Python code
AUDUSD trading strategy Python code

What is AUDUSD trading?

AUDUSD trading involves buying and selling the AUDUSD forex pair. Forex traders engaging in AUDUSD trades are essentially measuring the strength of the Australian dollar against that of the US dollar.

This currency pair, often referred to as ‘Aussie’ by those within trading circles, serves as a barometer for comparing two distinct economic forces. Its value is contingent upon how one Australian dollar stacks up against its US counterpart. It’s a relative measure between two economies.

Australia’s wealth in natural resources is central to this trading dynamic, which means commodity prices play a significant role in influencing fluctuations within this currency pair. There’s an intricate relationship between factors such as China’s demand impacting Australia and shifts in interest rate decisions made by both the Reserve Bank of Australia and the Federal Reserve—all contributing to making AUDUSD a lively realm filled with various elements affecting its performance.

What is the best time to trade AUDUSD?

The best time to trade AUDUSD depends on your trading strategy. You might want to trade during “quiet hours”, or you might want to trade at peak volume and activity. Only a backtest can reveal what is best.

This currency pair’s peak activity occurs when European and North American market hours overlap between 1300 and 1700 GMT. During this period, traders witness significant volatility in the movements of the Australian dollar versus its counterparts, which might create opportunities for potential trading strategies.

As trades surge, with participants from across both Atlantic shores engaging simultaneously during these hours, there’s a beneficial reduction in spreads. This scenario offers an advantage to those involved in trading who aim to leverage fluctuations between not only the Aussie dollar against the US dollar but also involving its counterpart from New Zealand.

Is AUD USD good for scalping?

The AUD USD is good for scalping because of its deep liquidity, but generally, it’s hard to make money scalping, a technique aimed at capturing small, quick profits.

Scalpers frequently employ technical analysis instruments like Bollinger Bands and Relative Strength Index (RSI) to pinpoint the most advantageous times to enter and leave the market. Very few scalpers use quantified analysis.

While engaging in scalp trading with AUDUSD can yield rapid gains, there’s inherent risk due to high leverage that could magnify both wins and losses equally.

Is AUD USD a good pair?

USD USD is a good pair in terms of liquidity and volatility. Currency traders highly favor the AUDUSD pair due to its liquidity and significant trading volume within the forex market.

Its popularity stems from market fluctuations that offer numerous trading opportunities. As the base currency, the Australian dollar reflects a view of a commodities-abundant country’s economic condition, while as the quote currency, the US dollar cements this pairing firmly in international financial discussions.

The connection between two prominent economies enhances its appeal for traders – not only does it exhibit narrow bid-ask spreads, which is ideal for trading efficiency, but also demonstrates sensitivity to changes in commodity markets.

What drives AUSDUSD?

Illustration of factors driving AUDUSD including interest rates and commodity prices

The audusd is driven by multiple determinants, such as:

  • The fluctuating prices of commodities like iron ore and coal that Australia exports
  • The international demand for these key Australian resources, influencing the currency’s strength
  • Actions taken in monetary policy by Australia’s Reserve Bank, which have significant repercussions on currency markets

What are the trading hours for AUDUSD?

The trading hours for AUDUSD is 24/7, just like the forex market, the AUDUSD trading pair is active non-stop from Monday through Friday.

Its most dynamic activity occurs during the overlap of the Asian/Australian and North American markets when multiple time zones come together to stimulate increased trading action.

Best session to trade AUD/USD?

During the overlap of the European and North American sessions, there exists a four-hour period which is considered optimal for trading AUDUSD. This time frame has deep liquidity and narrower spreads, enabling forex traders to take advantage of significant price movements in this currency pair.

What are some good AUD/USD trading tips?

Some good trading tips for AUD/USD involve having a trading plan, being prudent, and not using too much leverage. We would recommend having a backtested trading strategy with clear and concise trading rules.

Success depends on maneuvering through trade relationships, purchasing power parities, and disparities in interest rates.

Where are the best trading charts for AUDUSD?

The best trading charts for AUDUSD can be found on multiple trading platforms, such as TradingView, TradeStation, etc.

Other platforms recognized for outstanding charting tools with regard to AUDUSD include:

  • MetaTrader platforms
  • cTrader
  • The suite offered by Saxo Bank
  • IG’s mobile charting options
  • Interactive Brokers
  • Amibroker

What are common mistakes to avoid in AUDUSD trading?

Common mistakes to avoid in AUDUSD trading are the following:

  • Lacking thorough investigation
  • Having no trading plan (at all) – making ad-hoc trades
  • Poor handling of leverage
  • Not considering risk
  • The emotional repercussions following losses
  • The allure of making trades based on market noise rather than robust analysis
  • Having no backtested trading strategy

We argue the last point is the most important one. If you are not backtesting, you basically have no clue if your strategy makes sense at all.

How do you trade the AUDUSD currency pair?

You trade the AUDUSD currency pair by understanding interest rate disparities, commodity prices, and how economic measures can influence its flow. Above all, we believe the best is to have a basic understanding of what trading is all about, such as a clear strategy, an understanding of risk management, and how to handle emotional stress from losses.

What factors influence AUDUSD exchange rates?

Factors influencing AUDUSD exchange rates are differences in interest rates, purchasing power parity, commodity prices, and how global trade might exert leverage on the Aussie economy.

The Australian dollar’s strength is reflected through trade terms – an indicator comparing export to import prices. In the long run, the Purchasing Power Parity (PPP) theory is probably the main determinant of the exchange rate.

How does AUDUSD trading work?

AUDUSD trading works by having a clear and concise plan, preferably involving specific trading rules. The market is enormously complex, and you need simple trading rules to cut through the complexities. Complexity does not mean better strategies; it probably means the opposite.

What is the slang word for the AUDUSD currency pair?

The slang for the AUDUSD currency pair is the “Aussie.” This slang not only pays homage to Australian culture, but also serves as a convenient shorthand among traders.

How can beginners start trading AUDUSD effectively?

Beginners can start trading AUDUSD effectively after they know how to trade. Just like any other business, it takes years to master trading. However, for some strange reason, some people believe you can just look at some charts and instantly make a lot of money. If it were that simple, everyone would be a millionaire, not to mention it would be boring without the challenge.

It’s important to develop a thorough knowledge of how this pair behaves across various timeframes; learning how to use trading indicators such as moving averages, RSI, and MACD (for example).

Maintaining patience and discipline is also critical for successful currency exchange trading, but it takes years to learn this.

What are the risks associated with AUDUSD trading?

Trading the AUDUSD trading presents a range of risks, including:

  • The notable volatility associated with this currency pair can cause sudden and significant shifts in price. Such moves tend to be random.
  • Economic influences, especially those originating from China – Australia’s foremost trade ally – affect the strength of the Australian dollar considerably.
  • Using leverage while trading AUDUSD intensifies both potential profits and losses. Most traders are too
  • How to handle a string of losses.

How does market sentiment affect AUDUSD trading?

Market sentiment affects AUDUSD in the short term. For example, during periods of economic turmoil, investors often gravitate towards the safety provided by the US dollar as a safe haven asset, resulting in downward pressure on the value of the Aussie dollar.

Conversely, when risk-taking is back in vogue among traders, it’s common to witness an uptick in investor confidence, propelling gains for Australia’s currency.

However, in the long run, the market is mainly determined by fundamental values, like interest and inflation rates.

How can technical analysis help in AUDUSD trading?

Technical analysis can help AUDUSD trading by giving you objective information, it might serve as navigation, showing potential trends and trading zones within the currency pair. This method assists traders in providing support and resistance levels where they may encounter buying or selling pressure.

However, we believe the best approach is to use fully mechanized rules that are backtested on historical data.

For example, you can employ statistical instruments such as Standard Deviation to forecast the probable fluctuation range of AUDUSD prices considering past volatility patterns.

What role does fundamental analysis play in AUDUSD trading?

Illustration of fundamental analysis impact on AUDUSD trading

Fundamental analysis plays a fundamental role in AUDUSD trading because, in the long run, the interest and inflation rates determine the direction of the pair.

Fundamental analysis includes analysis of monetary policy, shifts in financial market mood, and consequences arising from Australia’s international trade relationships.

What economic news is most important for AUDUSD?

The most economic news for AUDUSD is probably monetary interest rate decisions by the central banks, Producer Price Index, and Retail Sales data. This applies to both central banks.

Are AUDUSD affected by commodity prices?

The AUDUSD is significantly affected by commodity prices because of Australia’s dependency on these goods. The AUDUSD pair, known as a ‘commodity currency,’ is closely linked with the prices of commodities such as coal and iron ore that are fundamental to Australia’s export-driven economy.

The cost variations in these commodities have a direct effect on the Australian dollar, which often appreciates when there’s an uptick in commodity prices because overseas buyers require more AUD to complete transactions.

When commodity prices surge upward, this can lead to the outperformance of the AUDUSD pair due to the perceived robustness of Australia’s economic health at the expense of the USD.

What are key indicators for AUD/USD forex trading?

The key indicators for AUDUSD forex trading are macro indicators like interest and inflation rates, plus technical indicators like MACd and RSI. That said, there are plenty of indicators, and many could be helpful as long as you backtest them to find out.

How do interest rates affect AUD/USD trading strategies?

The direction of the AUD/USD currency pair is substantially affected by interest rates, as traders are often drawn to the potential for increased returns. When Australia has a higher interest rate compared to the United States, this differential can lift the Australian dollar because investors pursue greater yields from their investments. Conversely, when U.S. rates surpass those in Australia, it strengthens the USD and devalues the AUD.

How do central bank policies impact AUD/USD trading?

Central bank policies impact AUD/USD trading, because their interest rate decisions directly influence the exchange rate dynamics. The Reserve Bank of Australia (RBA) and the Federal Reserve’s economic forecasts and policy choices can either strengthen or diminish the Australian dollar, affecting both trade patterns and investor confidence.

When there is a disparity between RBA and Federal Reserve policies, it can lead to significant movements in the AUD/USD exchange rate. This offers traders chances to profit from these variations. Statements made by officials from these central banks may provide traders with advanced insight into prospective policy shifts that could affect market behavior and USD/AUD valuation trends.

However, markets are always looking ahead, so signals from press releases are frequently more important than the readings of some new numbers.

How do currency correlations affect AUD/USD trades?

Currency correlations affect the AUD/USD trades because of the interdependence of global financial markets. The fluctuations in this currency pair can be affected by its connections with different currencies like USD/CAD and USD/JPY because their quotations are counterposed in U.S. dollars. Moreover, typical “commodity exporters” currencies might increase correlations when the commodity markets are moving – either up or down.

The relationship between commodity prices, particularly gold, significantly impacts trading activities for AUD/USD. Given Australia’s status as a leading gold producer, an increase in gold prices typically strengthens the Australian dollar (AUD).

What are the pros and cons of using leverage in AUD/USD trading?

The pros and cons of using leverage in AUD/USD trading are as follows:

  • You can Increase exposure and possible gains in the market by using just a small amount of leverage.
  • You can initiate larger positions than would otherwise be possible with their available funds if you employ leverage.
  • Expanding your trading strategies to include multiple currency pairs for portfolio diversification. We believe this is the most significant pro.
  • Capitalize on profit opportunities in both upward and downward trending markets.

Nevertheless, employing leverage comes with significant risks!

The inherent volatility of these markets can lead to substantial losses when leverage is involved. As such, it’s imperative for traders engaging in USD/AUD trading activities to exercise prudence and have an acute awareness of how leveraging amplifies potential risks along with rewards. This is easily forgotten after a series of wins leaving you mentally unprepared when the inevitable series of losses occur.

How do support and resistance levels guide AUD/USD trades?

Traders of the AUD/USD currency pair utilize support and resistance levels to understand possible market price movements better. These critical thresholds indicate potential stops or changes in trend direction, providing strategic entry or exit points during trading.

A breakout of these predetermined levels may indicate a change in the sentiment surrounding the market, necessitating an adjustment in trading approaches. Traders can incorporate these critical markers into their technical analysis toolbox to enhance risk management by placing stop-loss orders that safeguard against unfavorable price fluctuations and by taking profits at set target prices.

What are the most traded timeframes for AUD/USD?

The most traded timeframes for AUD/USD are daily and intraday time frames. However, traders adopt different trading styles that influence their preference for particular timeframes when engaging with the AUD/USD currency pair. These can vary from 1-hour chart to more calculated and methodical planning facilitated by the 4-hour and daily charts. Traders might even use multiple time frames before they enter a trade.

Traders can customize their strategies by their own trading principles and time frames by backtesting, a method we recommend.

What’s the importance of risk management in AUD/USD trading?

In AUD/USD trading, risk management is paramount for a strategy, safeguarding you against the unpredictability and randomness of the forex market. You can use stop-loss orders and diversify currency exposure to mitigate risk.

A disciplined approach to position sizing and leveraging, coupled with a consistent reassessment of risk parameters, will ensure that you won’t be put out of business because of one big random move.

What are carry trade considerations for AUD/USD trading?

Carry trade considerations for AUD/USD trading involve studying interest rates and their estimated future volatility. Australia’s relatively stable economy and political climate increase the appeal of using the AUD as a potential carry trade. However, that is discounted in the markets because the markets look ahead. What happened in the past is of no relevance.

A carry trade is when you take advantage of higher interest rates in one currency, exploiting differences between national interest rates for profit by borrowing at a low rate and investing in the currency with a high rate.

Nevertheless, factors such as potential currency risks, issues surrounding liquidity, and unexpected changes in interest rates necessitate that traders make sure they can fight another day in case an adverse movement happens. Carry trades have wiped out plenty of traders.

What role does algorithmic trading play in AUD/USD markets?

Algorithmic trading plays a significant role in AUD/USD markets because most trading is done by computers and algorithms.

Automated systems bring exactitude and control to the execution of trading strategies within the AUD/USD markets, eliminating human emotional interference. The continuous operation of these algorithms allows them to consistently follow traders’ guidelines and seize opportunities that might present themselves.

How do option expiries influence AUD/USD trading dynamics?

During trading of the AUD/USD currency pair, the presence of large option expiries can subtly but importantly affect market dynamics. These expiries frequently serve as a pull for price movements, establishing innate levels of support and resistance near their expiry prices.

Traders may gain insights into anticipated market trends by analyzing the interaction between implied volatility and actualized volatility surrounding these expiration periods, which in turn can guide their trading strategies and decisions.

What advanced order types are useful in AUD/USD trading?

Advanced order types that are useful in AUD/USD trading are One-Cancels-Other and Good ‘Til Canceled orders.

One-Cancels-Other orders enable traders to execute a trade while simultaneously canceling an opposing position. However, it’s not the order type that determines whether you make a profit or not but the trading rules, which you hopefully have backtested to find out if they have worked on historical data.

How do intermarket analysis techniques apply to AUD/USD trades?

Intermarket analysis techniques apply to AUD/USD trades because other markets normally influence other currency pairs. This way, you might use intermarket analysis as part of your trading strategy.

Consider these important factors:

  • Commodity prices: When commodity prices, such as those for iron ore, decline, it often presages a fall in the value of the Aussie dollar.
  • Equity markets: The state of the stock markets may influence the AUD/USD currency pair since they indicate overall economic sentiment and investors’ willingness to take on risk.
  • Bond markets: It’s crucial to monitor movements within bond markets along with interest rate disparities because they offer insights regarding movement trends of the pair’s price.

Correlations, or lack of correlations, might be very helpful as a variable. Perhaps not the only one, but as an additional filter, it might be the missing link in your strategy.

How do macroeconomic events affect AUD/USD trading?

In AUD/USD trading, macroeconomic occurrences act as catalysts, affecting a wide range of trading approaches with their impacts. The release of economic statistics like US Producer Prices and Retail Sales can alter inflation expectations and predictions for interest rates, which significantly affect the exchange rate movements of this currency pair. Such events may either bolster ongoing trends or incite trend reversals within the market, showcasing their substantial influence on this particular trading pair.

Likewise, Australian economic reports are pivotal to shaping sentiment towards the AUD/USD pair’s performance. When data from Australia is unfavorable, it can lead to a decline in confidence toward the AUD, thereby swaying the exchange rate dynamics between these currencies.

How do you optimize risk-adjusted returns in AUD/USD trading?

In AUD/USD trading, optimizing risk-adjusted returns involves a balance between maximizing potential gains and minimizing exposure to risks. By implementing the following risk mitigation techniques, traders can protect their capital while allowing room for profitable runs:

  • Implement stop-loss orders to limit potential losses. However, our backtests show that stop losses rarely work and only make the strategy perform worse.
  • Trade multiple trading strategies that complement each other and might offset losses.
  • Develop a comprehensive trading plan that includes backtesting.
  • Making sure you know your risk tolerance to avoid folding at opportune moments.

Summary

This long article has given you lots of input on how you can trade the AUDUSD currency pair. You can read a lot on blogs and social media on how to trade forex, but at the end of the day you need to go out there and do it yourself. What might look easy in theory and hindsight, is far from easy as soon as money is on the line.

We believe the best approach is to make quantified trading rules that you backtest on historical data. If you are able to pull off many strategies in different currency pairs, you can trade those that complement each other and don’t correlate.

Frequently Asked Questions

Is AUD USD a good pair to trade?

The AUD/USD pair is good to trade due to being one of the most important pairs and having deep liquidity. However, it correlates with the USD/CAD.

What time is the AUDUSD session?

The AUDUSD session is from 19:00 to 04:30 (GMT).

How much is $1 US in AUD?

Currently, $1 is worth 1.5221 AUD. This conversion can be confirmed through a currency converter or most financial news providers.

Is AUDUSD bearish or bullish?

AUDUSD might be bearish or bullish based on different circumstances and from trader to trader.

What factors should I consider when developing an AUD/USD trading strategy?

You should consider your aims, knowledge, and know-how before you make any AUD/USD trading strategy. You can implement both technical and fundamental analysis to your approach, but we belive a purely quantified approach is the best. A quantified approach makes it easier to backtest and to find out the historical returns, but it also allows you to potentially trade an almost unlimited number of strategies via automation and computers.

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