Australian dollar on the verge of currency collapse
Australian dollar pairs are weakening across the board - AUD/USD is already through year-to-date lows. Learn what the probability of further collapse is by investigating futures and correlations to Chinese stocks.
Key points
- AUD/USD is down more than 6% in the last month
- Chance of AUD collapse is currently around 14%
- Australian dollar has a +0.7 correlation to Chinese large cap stocks
AUD/USD price action
AUD/USD has gone from around 0.6900 on July 13th to below 0.6400 this week - a near 500 pip move in just over a month. Looking back twenty years, the pair has not spent more than a month below 0.6000.
Probability of collapse
Investigating the futures market, the chance of finishing the year under 0.6000 is 14%* - a higher probability than historic context would suggest. The probability of Australian dollar at least touching that benchmark is roughly double - around 28%.
*probabilities estimated using the delta on /6A 0.60 strike puts expiring Jan 5, 2024
Correlation to Chinese stocks
On a three month rolling basis, AUD historically has a positive correlation to FXI, an ETF tracking large cap Chinese stocks. Currently their correlation is particularly strong - over +0.7. FXI is underperforming the S&P 500 by about 25% at the moment.
How to trade AUD/USD
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on AUD/USD
Trading forex requires an account with a forex provider like IG. AUD/USD can be found in IG's platform under the 'Major' pairs tab. Many traders also watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like IG’s Trading Academy. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. See our Summary Conflicts Policy, available on our website.
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