AUD/USD strategy: how much weight do you give China?
The Australian dollar is a China proxy and a commodity currency at once, which makes AUD/USD a two-channel trade: Chinese demand and global risk appetite. Strategies differ on which channel dominates when.
What's your weighting?
- the China signals you trade (data, fix, commodities)
- how risk appetite competes with the China channel
- the divergence that confused your model
The commodity currencies guide maps both channels.
Background: Commodity currencies explained: the Australian, New Zealand and Canadian dollars and the Norwegian krone
Why the currencies of big commodity exporters move with iron ore, dairy and oil prices, what each country actually exports, and when the link weakens.
What are commodity currencies?
Currencies of countries where commodity exports are a large share of trade, such as the Australian dollar (iron ore), the New Zealand dollar (dairy), the Canadian dollar (oil) and the Norwegian krone (oil and gas).
Why does the Australian dollar follow China?
Iron ore is Australia's largest export and much of it is sold to China, so Chinese demand and data affect Australia's export income and its currency.
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