What Is The Best Time Of Day To Trade AUD/USD?

Is AUD/USD a good pair to trade?

The AUD/USD pair in Forex, nicknamed ‘the Aussie’, is one of the more popular currency pair options for traders. Though its designation as a ‘major currency pair’ is contested, it is one of the three most-traded ‘commodity currencies’ against the US dollar. AUD/USD is the 6^th most traded currency pair according to Investopedia and makes up 5.1% of the Forex market share as of 2023.

Australia has the 14^th largest economy in 2023, according to Forbes, and is a major exporter of coal, iron-ore and other metals and minerals. Its status as a major commodity exporter, and the country’s close trade relations with the U.S.A., make AUD/USD a strong pairing. Additionally, Australia has had relatively high-interest rates compared to the United States, which attracts ‘carry traders’, who seek to profit from the interest rate differential between nations.

Additionally, the Australian economy has close ties to Asian economies, especially China. Changes in economic conditions in Asia can impact the AUD/USD pair, providing trading opportunities for those who follow these markets.

AUD/USD trading hours

AUD/USD, like all currency pairs, can be traded 24 hours a day, five days a week (Monday to Friday, or Sunday night to Friday depending on your time zone and location). However, there are times that are preferable for trading AUD/USD. Major foreign exchange markets in different countries are open at specific times during the day, leading to variations in liquidity and volatility throughout the trading day. It’s important to know when each market is open, and when market sessions overlap, to coordinate your trading times and strategy.

There are four major foreign exchange markets around the world, each with their own market sessions throughout the trading day:

• Tokyo Session (Asian Session): Runs from 12:00 AM to 9:00 AM GMT. It’s dominated by Asian markets and sees increased activity in AUD pairs.

• London Session (European Session): Is open from 8:00 AM to 5:00 PM and overlaps with Tokyo, providing liquidity. The EUR, GBP, and CHF pairs are most active. AUD/USD sees highest volatility during this session.

• New York Session (North American Session): Running from 1:00 PM until 10:00PM GMT, this session overlaps with London, resulting in high liquidity. USD pairs are the most in focus.

• Sydney Session (Pacific Session): Open from 10:00 PM to 7:00 AM GMT. It’s the smallest session, and AUD and NZD pairs are most active. It overlaps with Tokyo’s session and provides continuity between sessions.

AUD/USD trading hours

The best times to trade AUD/USD

The best times to trade AUD/USD will depend largely on a trader’s trading strategy, location and time zone, and financial goals. However, trading during times of high volatility means higher liquidity, narrower spreads in the bid-ask price, and more trading opportunities leading to higher profit potential. However, times of high volatility also means higher risk, as price movements are more significant and unpredictable.

The times of day that see the highest volatility in AUD/USD trading, based on GMT, are:

• 1

  Peak of European Session 12PM to 4PM GMT: These are the peak hours of the London session and beginning of the New York session, marking the New York – London market session overlap. Volatility peaks here. Major economic releases for both Australia and the U.S. frequently occur during this overlap. This is 8AM to 12PM EST in New York, and 11PM to 3AM local time when trading from Sydney.

• 2

  Peak of Sydney – Tokyo Overlap 1AM to 3AM GMT: AUD/USD sees its second highest volatility at the early hours of the Asian session and middle of the Pacific session, during their long overlap. Australian economic data releases often happen during this time, contributing to the increased volatility. In New York, this is 9PM to 11PM EST. In Sydney time, this is 12PM to 2PM.

• 3

  Closing of New York Session 6PM to 9PM: When the New York market session is ending, market news or economic releases are announced that affect USD pairs, and AUD/USD volatility sees an uptick. This is 5AM to 8AM in Sydney, and 2PM to 5PM EST in New York.

  

  Volatility per hour - Source: Babypips.com, GMT Time Zone

What is the daily volatility of the AUD/USD?

Many factors can influence daily volatility in AUD/USD, causing it to fluctuate throughout the trading week. On Monday, traders are often reacting to weekend events when the market opens. Stability varies throughout the week, and with most currency pairs volatility is at its highest on Fridays. However, with AUD/USD, volatility is highest on Thursdays. It’s at its lowest on Mondays.

Daily Volatility of AUD/USD (Source: babypips.com)

How to trade AUD/USD?

Trading the AUD/USD involves considering various factors, such as the differential in interest rates, the Reserve Bank of Australia (RBA), and commodity prices. Make sure to consider these key factors when adopting your trading strategy:

• Correlation with Commodities: The Australian Dollar is closely tied to commodity prices, particularly metals and minerals. Monitor commodity markets, especially iron ore and gold prices, as they can influence the price of the AUD/USD pair.

• Commodity Price Trends: Look for trends in commodity prices and how they align with the movement of the AUD/USD. Trend Following strategies can be employed based on these correlations, such as Commodity-Currency Trend Following.

• News from RBA: The Reserve Bank of Australia (RBA) decisions on interest rates, and statements and economic assessments provide insights into the health of the Australian economy. A positive outlook may support the AUD, while a cautious or negative outlook could lead to depreciation. The RBA sets targets for short-term interest rates and issues monetary policy guidance on the first Tuesday of each month.

• Interest Rate Carry Trades: Take note of interest rate differentials between Australia and the U.S.A. Traders may engage in carry trades by going long on the currency with a higher interest rate (AUD) and short on the currency with a lower interest rate (USD)

• Key Economic Indicators: Regularly check economic indicators such as employment data, GDP growth, and inflation rates from both Australia and the U.S.A. Australian economic indicators can be found at the website of the Australian Bureau of Statistics.

Pros of trading the AUD/USD currency pair

There are several benefits to trading the AUD/USD currency pair, as is evidenced by its position as the sixth most popular currency pair (or fifth, depending on the source). The advantages are:

• Liquidity: As one of the most traded currencies in the world, AUD/USD sees high liquidity. This allows ease of trade, less slippage, lower trading costs, and a deeper market depth that buffers against shocks to the wider market.

• Narrow Spreads: As a widely traded currency pair, spreads between the bid and ask price for AUD/USD is relatively tight compared to less popular pairs. This can reduce the overall price for traders.

• Carry trading: Australia and the United States typically have very different interest rates. This creates opportunities for carry traders who seek to profit from the interest rate differential between AUD and USD.

• Diversity of Trading Sessions: The AUD/USD can be actively traded during various market sessions, including the overlap of the Asian, European, and U.S. sessions. This allows traders to choose from different time frames that suit their preferences and strategies.

For up-to-date analyses and forecasts for AUD/USD price action, see Traders Union’s expert analytics feed.

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