I suggest everyone gets comfortable with $1,000 gold. We’re not likely to see gold drop below that anytime soon. As gold continues to rise, key currencies will also prosper.

One is the South African rand, because South Africa happens to be one of the world’s largest miners/exporters of gold.

However, I like this one better…Australia.

As you probably know Australia is a major miner/exporter of gold to the entire world, and has one of the major currencies of the world. But Australia has one added benefit: The Reserve Bank of Australia is currently raising their interest rates.

But the Aussie dollar becomes even more attractive when paired with the right weak gold currency in the Forex market…

The “No Brainer” Currency Cross

Now of course you could just buy the AUD/USD pair to play this trend. But then, you have to worry about the constant stream of dollar-moving news that can shift your trade one way or the other.

It’s ultimately more strategic to pair the Aussie dollar with currency cross (non-dollar pair). In this case, there’s no better weak currency than the Japanese yen.

The reason why I like pairing the Aussie with the Japanese yen is Japan is not going to raise interest rates anytime soon. Also, when the Bank of Japan does finally raise rates, it’s usually no more than ½ of 1%.

This means there will be an expanding interest differential between the Aussie and yen as Australia continues to hike rates, and Japan holds their rates around 0-1%.

Add in the fact that Australia’s main export (gold) will continue to rise, and that makes AUD/JPY the pair to watch. Check it out below.

The Rise of Gold Supports the AUD/JPY Trade!

Many other countries will go as far as 4-8% on their rate hikes once they start down that path….not Japan though. That would crush their economy and everyone knows it.

Therefore the expanding interest rate differential and high gold prices mean that a trader can buy AUD/JPY on sizable dips and “hang on” and they’ll likely come out very well. After all, this Australian rate hike cycle is just getting started!

Look for More Great Days Ahead of AUD/JPY!

On top of this, the shiny metal, gold formerly built a base between $900 & $1,000 for about eight months before this latest breakout.

Once a breakout occurs from a very long sideways basing pattern, it usually rallies for some time to come. Of course, there will be pullbacks, but overall gold will continue to rise.

That means the AUD/JPY will soar for a long time to come!

Happy Trading,
Sean Hyman, Professor FX

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