As a keen trader if you study currency and commodity trading you will discover that it relates to the currencies of countries where commodities contribute a significant proportion of economic output as well as exports. These could be metals like copper, or crude oil, or agricultural products like sugar and coffee.
Clearly the currencies of a number of countries around the world could be called commodity currencies on this very broad definition. For the purposes of currency and commodity trading, the term relates to three major country currencies where a significant contribution to exports comes from commodities.
The Australian dollar, the New Zealand dollar and Canadian dollar are all affected by movements in the price of global commodities, with gold price movements strongly reflected in changes in the Australian dollar, while the Canadian dollar has a strong relationship with the price of crude oil. Meanwhile the New Zealand dollar (or Kiwi), while not linked to a particular commodity like the other two currencies, displays a general correlation with movements in the Commodity Research Bureau (CRB) Index.
Let's consider what happens as gold strengthens? We can expect to observe a similar rise in the AUD/USD pair (the Aussie), as all currencies trade in pairs. This equates to a strengthening of the Australian dollar versus the US dollar, or put it another way, the US dollar is weakening in that pair. The onset of economic uncertainty in the global economy, such as recession or rising inflation, prompts investors to move into gold as it is regarded as a safe haven. Currency and commodity traders will also see how gold links to the Aussie, and trade this pair instead.
A substantial proportion of Australia's output comes from commodities and well over half its exports are derived from these sources, with precious metals like gold a major player, along with copper and coal. A glance at trading charts shows a very positive correlation of gold and the Aussie. So a focused trader could either decide to trade gold futures or an ETF, or use the forex market for AUD/USD pair exposure.
Followers of currency and commodity trading will know that Canada is a major commodities producing nation and specifically one of the worlds largest crude oil producers. Accordingly, there is a fairly strong negative correlation between movements in the USD/CAD (the Loonie) pair and the price of crude oil.
Canada is the largest supplier of oil to the USA, which is the worlds largest consumer of this key commodity. So high oil prices are good for the Canadian dollar but negative for the US economy and US dollar. Traders can go long on the Canadian dollar in the forex market if they are bullish about the price of crude oil, as an alternative to trading Nymex crude futures or oil ETF's.
When you consider these three currency pairs it's clear why currency and commodity trading followers sense a real opportunity in spot forex trading to capture commodity market movements, whether in gold, crude oil or across the broader commodities universe. With currency trading always providing a bull market, it just comes down to deciding which currency in the pair you are long or short.
Clearly the currencies of a number of countries around the world could be called commodity currencies on this very broad definition. For the purposes of currency and commodity trading, the term relates to three major country currencies where a significant contribution to exports comes from commodities.
The Australian dollar, the New Zealand dollar and Canadian dollar are all affected by movements in the price of global commodities, with gold price movements strongly reflected in changes in the Australian dollar, while the Canadian dollar has a strong relationship with the price of crude oil. Meanwhile the New Zealand dollar (or Kiwi), while not linked to a particular commodity like the other two currencies, displays a general correlation with movements in the Commodity Research Bureau (CRB) Index.
Let's consider what happens as gold strengthens? We can expect to observe a similar rise in the AUD/USD pair (the Aussie), as all currencies trade in pairs. This equates to a strengthening of the Australian dollar versus the US dollar, or put it another way, the US dollar is weakening in that pair. The onset of economic uncertainty in the global economy, such as recession or rising inflation, prompts investors to move into gold as it is regarded as a safe haven. Currency and commodity traders will also see how gold links to the Aussie, and trade this pair instead.
A substantial proportion of Australia's output comes from commodities and well over half its exports are derived from these sources, with precious metals like gold a major player, along with copper and coal. A glance at trading charts shows a very positive correlation of gold and the Aussie. So a focused trader could either decide to trade gold futures or an ETF, or use the forex market for AUD/USD pair exposure.
Followers of currency and commodity trading will know that Canada is a major commodities producing nation and specifically one of the worlds largest crude oil producers. Accordingly, there is a fairly strong negative correlation between movements in the USD/CAD (the Loonie) pair and the price of crude oil.
Canada is the largest supplier of oil to the USA, which is the worlds largest consumer of this key commodity. So high oil prices are good for the Canadian dollar but negative for the US economy and US dollar. Traders can go long on the Canadian dollar in the forex market if they are bullish about the price of crude oil, as an alternative to trading Nymex crude futures or oil ETF's.
When you consider these three currency pairs it's clear why currency and commodity trading followers sense a real opportunity in spot forex trading to capture commodity market movements, whether in gold, crude oil or across the broader commodities universe. With currency trading always providing a bull market, it just comes down to deciding which currency in the pair you are long or short.
About the Author:
The author, William Davies, studies commodities closely and writes for an educational Commodity trading website. Learn more about how to benefit from currency and commodity trading in the world markets.
