Forex trading involves buying and selling different currencies in the global market. The exchange rates of these currencies are constantly fluctuating, and traders try to make a profit by predicting the direction of these changes. One of the most popular currency pairs in forex trading is AUD/USD. This pair represents the exchange rate between the Australian dollar and the US dollar. But what forex currency pair correlates with AUD/USD?
Correlation in forex trading refers to the relationship between two or more currency pairs. A correlation coefficient measures the degree of correlation between these pairs. A correlation coefficient of 1 indicates a perfect positive correlation, while a correlation coefficient of -1 indicates a perfect negative correlation. A correlation coefficient of 0 means that there is no correlation between the pairs.
In the case of AUD/USD, the currency pair that correlates the most is the NZD/USD. This pair represents the exchange rate between the New Zealand dollar and the US dollar. The reason for this correlation is that both the Australian and New Zealand economies are heavily dependent on exports, particularly to Asia. As a result, their currencies are influenced by similar factors, such as commodity prices, global economic growth, and geopolitical events.
When the correlation between AUD/USD and NZD/USD is high, it means that the two pairs move in the same direction. For example, if the AUD/USD is going up, the NZD/USD is likely to go up as well. This correlation makes it easier for traders to make informed decisions when trading these pairs. If a trader believes that the Australian dollar will strengthen against the US dollar, they may also choose to buy the New Zealand dollar.
However, it’s important to note that the correlation between AUD/USD and NZD/USD is not always perfect. There are times when the two pairs move in opposite directions or have no correlation at all. This can happen when there are significant differences in the economic data or monetary policies of Australia and New Zealand. For example, if the Reserve Bank of Australia decides to raise interest rates while the Reserve Bank of New Zealand keeps rates unchanged, the correlation between the two pairs may weaken.
Another currency pair that can have a correlation with AUD/USD is the USD/CAD. This pair represents the exchange rate between the US dollar and the Canadian dollar. The reason for this correlation is that both Canada and Australia are major producers of natural resources, particularly oil. As a result, their currencies are influenced by similar factors, such as commodity prices and global demand. When the price of oil goes up, the Canadian dollar tends to strengthen, which can also lead to a strengthening of the Australian dollar.
In conclusion, the currency pair that correlates the most with AUD/USD is NZD/USD. This correlation is based on the similarities between the Australian and New Zealand economies, particularly their reliance on commodity exports. However, traders should be aware that this correlation is not always perfect and can be influenced by other factors. The USD/CAD is another currency pair that can have a correlation with AUD/USD, particularly when there are changes in the price of oil. Understanding the correlations between different currency pairs can help traders make more informed decisions and manage their risk more effectively.
