Australian Dollar Index - AUD Index Trading
Instrument - &AUD_Index
Type - PCI
Australian Dollar Index Investing
AUD Currency Index Description
The currency index is used for analysis and trading of the Australian dollar AUD against the rest of the Forex market. A portfolio of most liquid currencies is used as a market systemic indicator: EUR, USD, JPY, GBP, CHF, CAD.
The following are the advantages of the currency index &AUD_Index: (a) the index reaction to the fundamental events in Australian economy is the most obvious and stable, (b) the index sensitivity to fundamental events in other currency zones is minimal, which allows to detect low-volatility trend movement of the index that characterizes objectively the state of Australian economy. The theoretical bases for the component composition of the index can be found below in the section "Application field".
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|&AUD_Index||№||Asset||Volume / 1 PCI||Percentage||Volume (USD) / 1 PCI||Unit of measurеment|
- The volume to calculate Swap and 1 pip value
- The size of 1 pip
- Margin in USD for the volume and leverage of 1:100
- 8.14 USD
|Swap (long/short) in pips on Vol||-0.023 / -0.015||-0.023 / -0.015||-0.023 / -0.015|
|>=99.24||0.99 – 100.30||>=0.99|
|The value of 1 pip in USD for the Vol||0||0||0|
|Week day||Trading hours (CET)||Local trading hours|
|Monday||00:00 — 24:00||00:00 — 24:00|
|Tuesday||00:00 — 24:00||00:00 — 24:00|
|Wednesday||00:00 — 24:00||00:00 — 24:00|
|Thursday||00:00 — 24:00||00:00 — 24:00|
|Friday||00:00 — 22:00||00:00 — 22:00|
In the foreign exchange turnover study carried out by the Bank of International Settlement in April 2013 7 leading currencies, which we have included for considering, stand out in monthly exchange turnover volumes.
|Currency||Turnover share, %|
Тable 1. Central bank foreign turnover. April 2013
In the right hand column the respective shares of currencies in the foreign exchange turnover of regulators are presented in descending order.
In creating the index we consider (quote) AUD against "portfolio standard", composed of 6 remaining liquid currencies: USD + JPY + EUR + GBP + CHF + CAD. The weight optimization is carried out so that the standard possesses the minimum sensitivity with respect to the events in Australia. The weights, which correspond to the quoted standard, are selected on the basis of currency zone "non-interference" principle.
Let us explain the application of that principle. The table of liquid currency priority for foreign exchanges quoted against Australian dollar is made on the basis of foreign exchange turnover 2013 study where we apply a numerically small value 0.1% for the turnover share of the currencies not presented in the source.
|Currency pair||Turnover share, %||Residual influence share, %|
Тable 2. Currency pair monthly turnover. April 2013
The total share of AUD turnover relative to the liquid instruments under consideration is 8.3%. Then the residual share is equal to the difference between the total share and the currency pair share.
The residual share characterizes the currency (AUD) stability with respect to changes in the price of the quoted part. Indeed, In order to introduce significant volatility into the index the participation of remaining “counterpart” currencies (AUD vs X) is required with the weights equal to their share in the foreign exchange operations. Therefore the values from the right hand column of the Table 2 were applied for determining the currency weights for creation of the index.
Let us remind that the structure of the &VSUSD_Index index can be represented as follows:
AUD / ( W1*USD + W2*JPY + W3*GBP + W4*CHF + W5*EUR + W6*CAD )
We shall take the Wi weights for the standard proportional to the residual influence share (the right hand column of the Table 2). Thus, we are raising the index stability with respect to events in Australia. Then the index sensitivity will be determined by the base part – AUD. The estimates yield the percentage composition of the portfolio, presented in the table Structure.
The instrument &AUD_Index is highly sensitive with respect to fundamental changes in Australian economic development and therefore well suited for trend following strategy in periods when key fundamental events are anticipated.
In NetTradeX trading platform buying the instrument means capital allocation between a long position in AUD and a short position in the portfolio standard.
&AUD_Index can be used for comparative analysis of the index vs. popular currency pair AUDUSD, by building, for example, a percentage chart in the NetTradeX terminal for the two instruments (Fig.1) and studying the price dynamics during 2014. It is evident that since autumn of 2014 the currency pair started to fall much faster than the index, which allows to make a conclusion, for example, that the USD was the main contributor to the fall.
By comparing the price dynamics of the index and the currency pair for short-term trade (Fig.2) it is evident that the AUD index started to rise from 18.12.2014 while the AUDUSD continued to fall, which means that the dynamics of the Australian currency itself differed radically from the dynamics of the pair.
Traders, who specialize in fundamental analysis and focus on the developments in Australian economy and want to filter out the influence of other currency zones (for instance, events in USA and USD dynamics in the example above) will be comfortable trading this instrument.
To trade PCI instruments offered exclusively by IFC Markets, you need to open a free account and download the NetTradeX platform.