Foreign Exchange market is termed as the most liquid financial market and the only market that never sleeps, except on weekends. It involves the exchange of international currencies at varying rates and profit is made based on currency valuation differences. A pair in the forex market, the AUD/USD pair, has recently gained popularity due to its market stability and low interest rates. Investing in this pair demands a proper analysis and understanding of AUD USD forecast.
Transaction and exchange of money happen around the clock, and currency value fluctuations are rapid and sudden. This is probably one of those markets that get affected by almost all global condition and deals with a massive sum of USD 5.3 trillion daily. Whether to invest in a particular pair or not requires a trader to foresee upcoming market behaviour and place buy/sell orders accordingly.
Before dealing with AUD/USD forecast analysis and how you can apply the technique while investing, it is primary to understand what forex forecasting actually is and how it is formulated.
“The most reliable way to forecast the future is to try to understand the present.” – John Naisbitt.
AUD USD forecast – The Technicality.
In simple words, forex forecasting is somewhat similar to weather forecasting. You look up at the sky and base your decision of carrying an umbrella depending on the density of dark clouds above. Converted in terms of forex, you predict future market movements based on some given criterions, especially historical and past market trends. Accordingly, you make your decision to buy or sell a certain currency pair.
AUD/USD forecast follows a similar concept. Market movement of Australian Dollar against USD is predicted based on certain parameters, and a future expected market quote is set accordingly. Generally, four common methods for the determining factor. They are:
- Purchasing Power Parity (PPP)
- Relative Economic Strength.
- Econometric models.
- Time Series models.
Each method combines various technical and economic aspects and forecasts the valuation of this currency pair. PPP takes into account the cost of similar commodities to determine AUD’s valuation while Time Series model considers historical data and averages the total. Every tool comes up with near accurate results. That is, if PPP expects AUD to depreciate by 2% against USD in the next month, then AUD will definitely fall against USD but may not reach the exact set figure.
Technically, forex AUD USD forecast gives a trader an insight into the future market and helps in proper and timely decision making. Now that the technicality is clear, find out next from where you can get an accurate forecasting done.
AUD/USD forecast – sources.
Forex forecasting should be as accurate as possible and must be obtained from reliable sources. Different sources will give different data and different figures based on the different tools they use to predict. Few reliable sources are:
• Online predictions made by dedicated firms
Many online sites are available that put up predictions based on various technical tools they use. These sites not only provide future figures but also come with real-time market quotes and expected devaluations. Few sites also break up the forecast into weekly, monthly and yearly sections and provide with predictions of almost up to three to four years down the lane.
• Forex Forums and Expert’s Blogs
Various forex forums are available online where experts in forex trading put in their views about a particular currency and market movements. You can also interact with fellow traders with similar doubts and may also end up receiving valuable tips on the future market.
Many experienced traders maintain personal blogs and websites where they provide daily updates on market scenarios. Almost all of them provide forex predictions for the major currency pairs and provide their personal views. Predictions made by them are always accurate and generally reliable.
• The broker you are associated with
This is the most accessible source for forecasting. Your broker will definitely have tools available to him/her to analyse the present market and provide you with notifications regarding future market movements. With them, you are updated almost instantly and daily and release you from the work of going online daily.
Taking the example of AUD USD forecast, if your broker forecasts a fall in AUD’s valuation over the next month, it will be immediately be notified to you. Also, facilities are available to make an automatic sell in such a scenario.
• The global news
More than any machine, personal intuition works the best in forex. A country’s economy goes a long way in affecting its currency valuation. If you are interested in trade with AUD, keep a check on Australia’s economy, its international ties and its annual GDP growth. All these combined factors attract foreign investors to the country which creates a demand for AUD, and it will rise in price against USD.
Forecasting is primary before investing. However, when you check any of these sources for analysis, you will always find experts commenting like, “AUD is expected to be Bearish (or Bullish) in my opinion.” Read on to understand what they imply in AUD USD forecast.
Bearish & Bullish – applications
Investors or experts, who believe that AUD will rise against USD over time, term AUD as ‘Bullish’ and ask traders to make a purchase. Similarly, if AUD is expected to decline against USD, the currency is termed as ‘Bearish’, and a sell is suggested. Suppose the market quote of AUD/USD pair currently stands at 0.7541. If AUD USD forecast reveals that the quote is likely to rise to 0.7560 and will continue to follow the ascent, then AUD will be showing bullish nature.
On the contrary, if AUD is predicted to fall to 0.7480 and continue it’s decent over the next few weeks, the currency will have bearish nature. The figure difference may seem trivial, but it has significant importance when a trader invests in the carry trade concept.
AUD and carry trade
Carry Trade is a strategy of investment in which a trader borrows a currency with low-interest rates to buy a different currency that is demanding a higher interest rate. The trader earns profit from the difference of interest rate and also intends that the purchased currency will appreciate in value.
Most developed economy allows the low-interest rate to lend out their currency and create a currency demand. Japan is one example. This appreciates market valuation of Yen. Australia, on the other hand, lends out AUD at high rates. Hence, a trader can borrow Yen and use it buy AUD. The timing of this buy can be determined by AUD/USD forecast. A bearish market will allow the trader to buy more amount of AUD, and in the process lend out a larger sum fetching higher returns.
A bullish market, on the other hand, will reap profit for the trader due to AUD’s increment in valuation. So, even if Yen does not appreciate, using it to buy another bullish currency is definitely a wise trading strategy to increase returns.
AUD USD forecast – benefits
“Being able to look into the future has its advantages. You know what is coming.”
Traders come into forex market with the intention of fetching high returns on their investments. Proper forecasting allows a trader to take advantage of every market situation and place orders accordingly to make profits. Some, benefits of forecasting can be listed below:
- Place a timely order – AUD/USD forecast predicts AUD’s future movements. You can place a buy order when AUD is expected to rise and sell when it is expected to fall against USD. This will help to limit loss and maximise profit.
- Make use of a falling market – When the AUD market is expected to fall instead of rising, you can sell all your AUDs and later purchase it at a lower rate. This will allow you to buy more AUDs and enhance your returns when the market rises again.
- Measure how long to wait – The Forex market may fall momentarily and rise again. A falling market does not mean it is time for you to sell. AUD USD forecast will provide you with the information that the market may rise again and it is probably wise to wait. Also, it will show after how long the market will improve again. This will help you to set a time span regarding your wait.
Along with these, you can also compare forecasts of other currencies and transact accordingly. If AUD/USD is predicted to decline over the next few years while Yen is set to improve, you can choose to invest in Yen instead of AUD.
No matter what type of trader you are, long-term or short-term, or with how much amount you decide to trade with, AUD USD forecast is the primary and basic pre-requisite for forex trading. Do your research and invest wisely. Find out more about forex forecasting and other technical aspects of forex. Remember, in words of Warren Buffet; you ultimately have to do a few things right to make a profit.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.