There is little doubt that the Australian Dollar has become one of the most popular currencies to trade. In recent data release, the Bank of England revealed that transactions involving the Australian Dollar increased sharply recently. In October 2011 it had a 4.75% market share of the London FX market, swelling from 3.45% just few months before. It showed similar gains in the USA as well as major Asian trading centers. Some compare its importance to the other majors, like the USD, EUR, JPY and GBP and in many cases these claims are not exaggerated.

Analysts link Aussies’s growing popularity to its Chinese connection. Many traders supposedly use the AUD in order to trade data from China, since the Yuan is not a floating currency. Others point to the comparably high interest rates, as reason for the carry trade. However, the carry trade is more of a buy and hold approach, so it does not add much in terms of day-to-day volume. These and other explanations are not satisfactory to an average trader, who is looking for good trading vehicle in day-to-day activity. So, let us take a look at other characteristics of the AUD-USD, and see how it compares to, say, the GBP-USD.

First of all, costs of trading the Aussie have gone down in recent years, and by costs, I mean the spread. Not that long ago the AUD-USD was typically quoted with 4-5 pips spread. Not anymore. These days most reputable brokers offer the Aussie at 2 pips or below, virtually the same as cable. At times, even during the most active London hours, the spread in the AUD-USD is lower than cable, making it a very attractive instrument to trade.

Another measure of a good instrument for active traders is intraday volatility. Using a simple 10-day ATR, we can see that over last several months the AUD-USD has been moving as much. And at times even more than the GBP-USD. At present, in the midst of consolidation, the Aussie moves less, with ATR a little above 90, while the cable’s reading is just over 100. On balance, these results are comparable. For as long as the AUD-USD is close to parity and above, it should retain good intraday volatility.

When it comes to around the clock activity, the Australian Dollar certainly holds its own, too. All currencies are active during the London and New York sessions, but that is not necessarily the case in early trading. That is when the Aussie stands out. Obviously, these are Australian business hours, when market-moving events take place. However, even on days without scheduled economic announcements, the AUD-USD presents trading opportunities in early hours. The charts above are from last Friday, 03.02.2012, when the calendar was empty, yet the AUD-USD moved about 35 pips, while the GBP-USD managed only roughly 25.

One could argue whether the Australian Dollar is truly a “major” currency and present all kinds of reasons that it is not. Nonetheless, from a trader’s perspective, the Aussie is as good instrument as any, and should not be discounted as a secondary option. It presents as many opportunities as the other big names in Forex.

Mike K.