AUD/USD (Australian Dollar/U.S. Dollar)

DEFINITION of 'AUD/USD (Australian Dollar/U.S. Dollar) '

The abbreviation for the Australian dollar and U.S. dollar (AUD/USD) currency pair or cross. The currency pair tells the reader how many U.S. dollars (the quote currency) are needed to purchase one Australian dollar (the base currency)

Trading the AUD/USD currency pair is also known as trading the "Aussie."

BREAKING DOWN 'AUD/USD (Australian Dollar/U.S. Dollar) '

The value of the AUD/USD pair is quoted as 1 Australian dollar per X U.S. dollars. For example, if the pair is trading at 0.75 it means that it takes 0.75 U.S. dollars to buy 1 Australian dollar.

The AUD/USD is affected by factors that influence the value of the Australian dollar and/or the U.S. dollar in relation to each other and other currencies. For this reason, the interest rate differential between the Reserve Bank of Australia (RBA) and the Federal Reserve (Fed) will affect the value of these currencies when compared to each other. When the Fed intervenes in open market activities to make the U.S. dollar stronger, for example, the value of the AUD/USD cross could decline, due to a strengthening of the U.S. dollar when compared to the Australian dollar.

Australia is the largest coal and iron ore exporter, and therefore the plight of its currency is heavily dependent on commodity prices. During the commodity slump of 2015 that saw oil prices hit decade lows and both iron ore and coal prices slumped, the Australian dollar weakened sharply. It fell by more than 15 percent against the U.S. dollar and nearly hit parity against the New Zealand dollar - a level not seen since the 1970s. 

The AUD/USD tends to have a negative correlation with the USD/CAD, USD/CHF and USD/JPY pairs because the AUD/USD is quoted in U.S. dollars, while the others are not. The correlation with USD/CAD could also be due to the positive correlation between the Canadian and Austrlian economies (both resource dependent). 

The AUD/USD is the fourth most traded currency but is not one of the six currencies that make up the U.S. dollar index (USDX).