If strong economic data comes out of Australia, you might want to look at buying the AUD. Your first reaction might be to buy AUD/USD.
But what if at the same time, recent data also show the United States experiencing strong economic growth? Price action of AUD/USD may be flat.
One option that you have is to match the AUD against the currency of an economy that isn’t doing so well…. Hmmmm… what could you do?
Ah! Thank the forex gods for currency crosses!
Let’s say you did some analysis, checked the BabyPips.com economic calendar (shameless plug!) or Pip Diddy’s daily economic roundup (another shameless plug!) and you notice that the Japanese economy isn’t doing so good right now.
What do you do?
Of course, like any self-respecting bully, you jump all over this opportunity and go long AUD/JPY!
It’s your job as a forex trader to take advantage of certain opportunities so that you can put some silver dollars into your piggy bank.
Because of currency crosses, you now have the opportunity to match the currency of the best performing economy against that of the weakest economy without having to deal with the U.S. dollar.