What Are the Major Commodity Currencies?
When you start following financial and forex-related news, you may come across some unfamiliar terms. One of them is likely to be commodity currencies. So what are the commodity currencies and what should you know about trading them?
A commodity currency is a name given to currencies of countries which depend heavily on the export of certain raw materials/commodities for income. As a result, the price fluctuations of commodities reflect on these currencies.
In forex, commodity currencies Australian dollar, Canadian dollar, New Zealand dollar, Norwegian krone, South African rand, Brazilian real and the Russian ruble. As you may have noticed, the three of the currencies listed are majors: Australian dollar, Canadian dollar, New Zealand dollar.
Canada is the sixth-largest oil producer in the world and has been producing conventional crude oil for more than a century. Canada’s oil industry produced more than 3.8 million barrels of oil per day last year and is part of the global crude oil market. While Canada is unlikely to cause major effect on oil prices worldwide, the oil price fluctuations almost always affect the CAD.
Australia and New Zealand: Iron and Gold
Australian and New Zealand dollars tend to move in sync.
Australia accounts for around a third of global iron ore production. This means that its income is very sensitive to iron price changes. Furthermore, Australia is one of the major gold producers in the world. As a result, its economy is impacted by the price of gold and how much it can export.
New Zealand exports a lot of wood products, with the wood (lumber) being another commodity. But what’s more important, New Zealand is a major trading partner with Australia, which explains the correlation between the AUD and NZD. So, just like Australia, New Zealand is also highly affected by the price of gold. This is why both AUD and NZD pairs are very suitable for trading in relation to gold prices.
So if you are following the prices of oil, gold and iron ore, NZD, AUD and CAD pairs may be the best option for you to trade.
There is a high level of risk involved with trading forex, commodities, indices and other contract-for-differences. Past performance is not a reliable indicator of future results. You must be aware of the risks associated with trading directly or indirectly on margin.
Please ensure that you fully understand the risks involved and do not invest with money you cannot afford to lose. Please seek independent advice if the risks involved seem unclear to you and refer to our full risk disclaimer.
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