What Do Australian Dollar Futures Mean?

The Australian dollar future is a currency futures contract in which the underlying asset is the Australian dollar, and the pricing reflects the expected exchange rate of the Australian dollar to the U.S. dollar in the future. In essence, the Australian dollar futures is a currency contract that trades on a futures exchange, which represents an agreement to receive or deliver a specified amount of Australian dollars on a future date, at an already agreed exchange rate.

Since it trades on the futures exchanges, the contract is standardized and is different from the AUD/USD spot forex market, which operates over the counter. When compared to the spot forex market, where the broker can trade against the trader, it’s easy to see that the currency futures market is a highly regulated market.

Just like other futures contracts, the Australian dollar futures contracts are leveraged instruments. So, a trader only needs to deposit a portion of what the is worth. The minimum amount a trader needs to carry a contract is called the margin, which varies with the exchanges, market conditions, expiration of the contract, and the type of contract (full or micro contract).

At the end of every trading day, losses and profits made on that day are debited/credited to the respective traders’ accounts. Any trader, whose account is falling below the maintenance margin, is required to top up his account to be able to continue carrying the contract.

If you want to start trading the Australian dollar futures, just create an account with the exchange through your futures broker and deposit the required margin. You don’t need to have the full dollar worth of the contract to start since it’s a leveraged instrument. However, be cautious about futures trading — while it can easily make you money, you can also lose more than you invested.

Why Trade the Australian Dollar Futures Contract

Traders play the Australian dollar futures market for the following reasons:

Hedging: The Australian dollar futures is often used as a risk management tool by investors, business people, and fund managers who are exposed to AUD exchange rate risks.

Speculation: The majority of traders in the currency futures market are in it for speculation, and the Australian dollar futures is not an exception.

Arbitrage trading: Currency arbitrage traders can simultaneously buy and sell Australian dollar futures contracts on different platforms to benefit from any imbalance in prices.

How Australian Dollar Futures Trade

The Australian dollar futures contracts trade on the Chicago Mercantile Exchange (CME) Group. Through the CME Globex electronic trading platforms, the contract can be traded from any part of the world Sundays to Fridays from 5:00 p.m. to 4:00 p.m. CT the following day, with the exception of Fridays in which the market closes by 4:00 PM and reopens again on Sunday by 5:00 PM. There is usually an hour break each day from 4:00 p.m. CT.

The full contract of the Australian dollar futures is equivalent to 100,000 Australian dollars. The price quotation is in U.S. dollars to four decimal places, and the minimum price fluctuation is as follows:

• Outrights — $0.0001 per AUD increments or $10:00 per contract
• Consecutive months spread — $0.00001 per AUD or $1.00 per contract (only on the Globex platform)
• All other spread combinations — $0.00005 per AUD or $5.00 per contract

Apart from the full contract, there are also micro contracts, which settle for 10,000 Australian dollars. For the full contracts, there are listed contracts for the first three consecutive months and 20 months in the March quarterly cycle (March, June, September, and December).

Trading terminates at 9:16 a.m. CT on the second business day immediately preceding the third Wednesday of the contract month (usually Monday). If the foregoing date for termination is a bank holiday in Chicago or New York City, then, trading shall terminate on the next preceding business day common to Chicago and New York City banks and the Exchange.

At expiration, the contract is settled by physical delivery of the stated amount of Australian dollars and is usually done on the third Wednesday of the expiring month. If that day is a bank holiday in either Chicago, or New York City, or is not a business day in the country of delivery, the delivery shall then be made on the next day which is a business day in the country of delivery and is not a bank holiday in Chicago or New York City.

Australian Dollars Strategies

The Australian dollar futures are liquid enough to be traded actively, and we have several strategies for the market.

What can be said more, is that there are easier markets where you’ll find an edge quicker. However, a trading strategy in the Australian dollar futures market indeed will help with overall portfolio performance, and is a great addition to most portfolios!

If you want to receive edges for a variety of markets straight to your inbox, you definitely should check out our edge membership!

Australian Dollar Futures Seasonality

Here is a seasonal chart of the Australian dollar futures market:

Source: MRCI.com

Factors that Affect the Australian Dollars Futures

Both fundamental and technical factors can affect the Australian dollar futures, but we will focus on the fundamental factors, which include important economic data and political events.

Economic reports: Here are the reports with the highest impact on the Australian dollar futures market:

• Monetary policy reports, including interest rates and policy statements
• Inflation-focused reports, such as the consumer price index and the producers’ price index
• Growth reports, such as the GDP, manufacturing PMI, services PMI, and retail sales
• Reports about the balance of payments, such as current account and trade balance reports
• The Australian government’s credit rating
• Commodity prices, especially metals and grains
• Events in the major Asian markets

Political events: Important political events, such as elections and referendums, can have significant effects on the Australian dollar futures.

Conclusion

The Australian dollar futures is offered on the CME and its Globex electronic trading platforms. It offers investors and business people a way to hedge their exchange rate-exposed obligations, as well as provides traders with the opportunity to speculate on the Australian dollar.

Here is our archive with articles about other tradeable futures markets.

FAQ

What is the Minimum Amount Required to Carry an Australian Dollar Futures Contract?

The minimum amount required to carry an Australian Dollar Futures Contract is called the margin. It varies with exchanges, market conditions, expiration of the contract, and the type of contract (full or micro contract).

Why is the Australian Dollar Futures Market Used for Hedging?

The Australian Dollar Futures Market is often used as a risk management tool by investors, business people, and fund managers to hedge against AUD exchange rate risks.

How Do Economic Factors Affect Australian Dollar Futures?

Both fundamental and technical factors can affect Australian Dollar Futures. Fundamental factors include economic data like monetary policy reports, inflation-focused reports, growth reports, and commodity prices.