How to Evaluate the Relative Value of the AUDUSD and the EURUSD
Many people are wondering how to evaluate the relative value of the AUDUSD and the EURUSD. How do they decide which currency to buy or sell? The answer is actually quite simple: First, understand what’s different between these two international money market pairs.
The US dollar is the currency used in most trade. It trades mostly in markets that are based in the US, such as Chicago or New York.
The Euro is the second largest trading market. It trades mostly in European markets, such as London. It is the currency of choice for most European businesses. They purchase Euros in larger volumes than they sell.
When comparing the AUDUSD and the EURUSD, it’s important to compare their supply and demand. Supply and demand are how the currency is traded. AUDUSD prices have historically been slightly higher than EURUSD prices.
What’s causing the higher prices? There are two theories, neither of which is necessarily right. One theory says the EURUSD and the AUDUSD are undervalued.
Another theory says the EURUSD and the AUDUSD are overvalued. This is the theory of value creation. The theory states that the exchange rate between AUDUSD and the Euro has a different effect on Euro investors as it does on the AUDUSD investor.
The theory of value creation says that when the two currencies are on the same side of a trade, it doesn’t affect any investors in any way. When they exchange, they both lose the same amount of money. Therefore, they are not under or over valued.
Another thing to consider when looking at foreign exchange market pricing is the length of time the currency is onthe market. An alternative theory is called the triangle theory. This explains why the AUDUSD and the EURUSD don’t move together.
If the two currencies were allowed to continue to move on the same side, their prices would eventually be equal to each other. So in this theory, the AUDUSD and the EURUSD are currently overvalued and undervalued.
Here’s the difference between the AUDUSD and the EURUSD when the exchange rate is tight. A tight exchange rate means more money flows into the Euro and less money flows out of the Euro. This makes the EURUSD more expensive than the AUDUSD.
For you to make a decision about the relative worth of these two currencies, look at a good time to make a purchase or a sale. For instance, if the EURUSD price is rising, try to find some quality bargains. If the AUDUSD price is moving sideways, you may want to wait and see what happens when the Euro and US Dollar cross.
You can use historical data from the past couple of years to determine the current currency valuations. This is the best way to determine if the AUDUSD and the EURUSD are over or under valued.