Did you know that the price chart of the AUD/USD currency pair can be observed to assess the current market sentiment in either 'risk-on' or 'risk-off' mode?
This is due to the difference in nature between the two currencies, namely the US dollar and the Aussie dollar.
The safe-haven US dollar usually has the advantage of strengthening when the market is risky or risk-off.
So traders can pay attention when there is only news about issues that can disrupt the global market such as pandemics, geopolitical wars and others, will support the demand for the US dollar at the same time making its value soar.
On the other hand, the Aussie dollar currency will weaken at that time as the attraction towards it diminishes.
However, if the market situation recovers (risk-on), the Australian dollar will strengthen and it can be observed that the US dollar weakens as investors release their hold on it.
In addition, Australia (and New Zealand) is a country that is very closely dependent on China as its main trading partner.
As the world's second largest economy after the United States, any uncertainty affecting the Chinese economy could trigger concerns in global markets.
Because of that, when there is bad news in China and makes market sentiment riskier, the Australian dollar will start to weaken.
The movement of the Australian dollar usually goes hand in hand with the New Zealand dollar due to regional factors and having the same currency profile.
In conclusion, if you see a price drop happening on the AUD/USD chart without any economic data being published, there is a high probability that market sentiment is at risk or there is an issue happening that is disrupting the market.
On the other hand, if the price on the AUD/USD chart shows an increase, it is likely that the market is in a positive state at that time.
