Some Interesting Currency and Commodity Relationships Every Forex Trader Should Know

Global forex market is the world’s largest financial market where currencies of different countries are exchanged for making profits or for achieving specific goals. A good forex trader should be aware of different macro and micro economic developments and their impact on different currency prices. Actually trading involves successfully predicting future currency exchange rate changes and positioning themselves to benefit from that.

The relationship between currencies and commodities is one of those forex trading basics that every trader should know. The impact of some most traded and followed commodity price changes and the impact of those on economies, trade relationships and currency exchange rates are also very interesting too. Here are some prominent currency-commodity relationship examples and explanations.

Australian Dollar and Gold Relationship: Over the past decades, gold and Australian Dollar (AUD) has shown more than 80 percent positive relationship. That means, when the price of gold rises, AUD also experiences a proportional price appreciation. This is because Australia is the 3rd, 2nd according to some recent studies, largest producer of gold. AUD is also one of the most traded currencies in the world forex market.

Interestingly, though not a leading producer of gold, New Zealand Dollar (NZD) also shows a very high positive correlation to gold price changes. This is because New Zealand and Australia have very strong trade relationships and Australia is the main destination for New Zealand exporters. Also, price appreciation of other precious metals and agricultural commodities positively affect the value of currencies of nations who are the largest producer or exporter of the commodities. But most of these price changes won’t make any significant impact on global forex market because the lack of liquidity for exotic currency pairs and because most of these commodity price changes are very gradual.

Canadian Dollar and Crude Oil Relationship: Like AUD-gold relationship, Canadian Dollar (CAD) and crude oil price change show a positive correlation over 80 percent. Like Australia in gold, Canada is the 7th, 6th according to some new stats, largest producer of oil and also is the 2nd largest oil reserve of the world. Canada is the most significant oil supplier to the United States, the largest economy in the world.

United States Dollar (USD) also shows good positive correlation to oil price changes. This is because USD is the currency used worldwide to determine oil price and to trade oil.

Japanese Yen and Oil Relationship: Contrary to CAD and USD relationship to oil prices, Japanese Yen (JPY) shows a negative correlation to oil price changes; that is when the oil price appreciates, then Yen value depreciates. This is because Japan needs to import almost all oil they need from other countries. Evidently, CAD/JPY pair is regarded as the most sensitive pair with regard to oil price changes.