WHAT IS GBP/AUD FOREX TRADING?
The GBP/AUD forex pair pits the value of the British pound against the value of the Australian dollar. The GBP is representative of the British economy, while the AUD is the best barometer of the economy ‘down under’ in Australia. It is not a ‘major’ forex pair because it doesn’t carry the same liquidity as the major pairs involving the US dollar. Nevertheless, the GBP/AUD forex trading pair is still one that is regularly used for cross trading, with the ability to settle trades in GBP and AUD without having to use the US dollar as a contract settlement currency.
History of the GBP/AUD
As the world’s oldest fiat currency, the British pound has a heritage dating back as far as the late 8th century. The GBP has been in its current guise since 1971, following the decimalisation of the currency. The GBP/AUD forex pair has been in existence since the AUD preceded the Australian pound in February 1966.
Factors that influence the GBP/AUD
The UK is currently the eighth biggest trading partner for Australia. According to the UK’s International Trade Secretary, Liz Truss, over £46 billion is invested in each other’s economies. Although they may be separated by thousands of miles, it’s clear that Britain and Australia remain heavily intertwined on an economic and commercial level.
Subsequently, the GBP/AUD forex trading pair is influenced by monetary policies on both sides of the world, as well as any economic performance including unemployment rates, imports and exports.
The Role of the British pound
Political and economic conditions are the primary driver of the GBP in most forex pairs and that’s no different with the GBP/AUD pair. Forex traders will look to the UK’s gross domestic product (GDP) data to determine the underlying strength of the UK economy.
In addition, the Bank of England’s monetary policies will also be a major consideration, with interest rates being a key indicator of the economy’s stability in terms of inflation.
Seismic political shocks like the UK’s referendum decision to leave the European Union (EU) can cause market sentiment to shift away from the UK due to the uncertainty, which can strengthen quote currencies like the AUD that are largely sheltered from Brexit.
In fact, Australia stands to benefit from Brexit as the UK seeks to strengthen ties down under with ambitious new free trade agreements.
The Role of the Australian dollar
From the perspective of the Australian economy, the primary objective of GBP/AUD forex trading is to delve deep into the island’s import and export industry.
Its exports are at the heart of what drives the AUD, with the country ripe with precious commodities including iron ore, coal and many more.
Forex traders will also look closely at the Reserve Bank of Australia, which sets interest rates and the overall monetary policy down under.
The Australian dollar has been consistently solid in the forex markets because its government debt carries comparatively low-interest rates compared with other high-profile nations and economies.
Strategies on forex trading GBP/AUD
Two of the most common ways to trade a minor forex pair like GBP/AUD is to scalp the market or open a swing trade position. Forex traders that rely on technical analysis to determine points of support and resistance in the GBP/AUD market attempt to open and close short-term trades between the support and resistance prices, taking small but consistent profits.
Forex traders that prefer to use fundamental analysis such as news stories and press releases to formulate trading angles may prefer a swing trade.
Overtly positive or negative economic data regarding the British or Australian economies can help shift momentum in the GBP/AUD market quickly. Swing traders tend to risk smaller amounts in the hope of catching bigger market moves for magnified profits.
When to buy or sell GBP/AUD
If you are confident that the value of the Australian dollar is likely to rise against the British pound, it’s a good time to buy the GBP/AUD. On the flip side, if you believe the Australian dollar is set to fall against the British pound, you might want to sell the GBP/AUD forex pair.
Your strategies for GBP/AUD forex trading should therefore be based around the technical and fundamental analysis in order to pinpoint the right times to enter and exit the GBP/AUD market.
How to trade GBP/AUD
For those who feel ready to begin trading the GBP/AUD forex pair, at FxForex.com we’ve spent a great deal of time rating and reviewing the leading forex brokers on our website. These brokers typically enable retail traders to trade the price of currency pairs using contracts for difference (CFDs) and spread bets.
With CFD forex brokers, there is no requirement to own or store the fiat currencies you ‘buy’ or ‘sell’. Instead, you are merely speculating on the price moves of the underlying assets – in this case, the GBP and the AUD.
The danger of forex trading, in general, is overcomplicating your trades. To achieve a profit from a trade on the GBP/AUD market, you can do so in two ways.
Firstly, if you choose to go long (buy) the GBP/AUD, your closing position must be higher than your opening position. Secondly, if you opt to short (sell) the GBP/AUD, your closing position must be lower than your opening position.
Close your position to take a profit or cut a loss
Forex trading software makes it easier to automate your GBP/AUD trades. Many of the forex brokers listed on FxForex.com are fully compatible with state-of-the-art trading software such as MetaTrader 4 and 5.
Meanwhile, other brokers may have invested in developing their own proprietary trading platforms to enable you to manage your positions with speed and precision.
Either way, trading software is important to use to manage your risk in open positions in GBP/AUD forex trading. Stop loss orders will cut your position and take a small loss before it escalates into a bigger one.
Meanwhile, take profit orders can close your winning trade and take the profit at a predetermined price or percentage of stake, thereby reducing the potential for human error.
Choose a broker & open an account
At FxForex.com, we understand that the forex trading landscape can be somewhat confusing to newcomers from the outset.
That’s why our website is designed to demystify forex trading and help you to profit from your investments and choose a broker you can trust. Our comprehensive broker reviews are designed to help you make the right choice.
There are several factors to take into consideration before placing your first GBP/AUD forex trade:
- Volatility – the GBP/AUD is one of the most volatile minor currency pairs;
- The AUD is a commodity currency – the dependence on exports of gold, iron ore and gas, therefore, makes this currency riskier to trade;
- Links to China – Australia is increasingly dependent upon the Chinese economy, given its geographical link. Any fluctuation in China’s growth could have a negative impact on the AUD.
In summary, the GBP/AUD forex trading pair contains two of the most liquid fiat currencies in the global forex market. The GBP/AUD market is particularly active during the Pacific and European trading sessions considering that Australian and British economic updates are released at these times.
Although the GBP/AUD doesn’t have the stability of the US dollar to underpin it as a cross-currency pair, this volatility can be seen as a good thing. Forex traders invariably thrive off it, since where there is price movement there is profit to be had!