Commodity Currencies Definition In Forex Trading is simple, The currencies of those countries that possess huge quantities of natural resources or commodities are called Commodity Currencies. Majority of any country’s exports are of natural resources only and so the economic strength of a country will depend on the natural resources of the country. So the countries rich in natural resources such as Russia, Saudi Arabia etc are also economically stronger. The currencies of many countries rich in natural resources rarely trade in the International Forex market. This is the reason why Australia, Canada and New Zealand are three main countries where commodity currency trading is done, Fxstay team also trade Commodity Currencies
The Canadian Economy
The natural gas, oil and timber are the main natural resources of the country. Based on GDP per capita, Canada has achieved the seventh highest living standard in the world and its economy is a dynamic economy. The major part of Canada’s exports is send to US and this is the reason why economies of both the countries are closely related.
The Australian Economy
Australia is rich in the natural resources such iron, coal, aluminum and gold. Australia has the highest reserves of these natural resources and this makes Australia, the world’s most rich country in these natural resources. Despite of these economic advantages, the Australian dollar has always been in pressure because it is a geographically isolated area with small population. These factors make it necessary for Australia to import large quantities of those goods that are not produced with in the country. This increases the import volume and large trade deficits can be observed that creates a pressure on the Australian dollar.
The New Zealand Economy
In the year 2005, the New Zealand was given the title of the most business friendly nation of the world. This title was given to the New Zealand by the World Bank. This title is given to the New Zealand because the country is extremely open to Foreign Investment and International Trade. The country is extremely open to the International trade because of presence of many natural resources with a huge agricultural sector.
Factors effecting the movement of the Commodity Currency
The price of the commodities is the primary factor involved in determining the movement (either up or down) of the commodity currencies. A general rule say that, higher the price of the commodity is the greater the strength of the currency is and when the lower the price of the commodity is the weaker the strength of the currency is. The higher interest rates have made Australia popular in the Carry Trade. The Carry Trade reverses very quickly if the financial condition changes.
How to trade the Commodity Currencies
The interest rates are higher in countries such as New Zealand and Australia as compared to the other countries like Japan. So the International traders and investors are advised to sell Yen (Currency of Japan) and buy the dollar of New Zealand or Australia. These trades lift the value of the currency of the New Zealand and Australia. The currencies of Australia, Canada and New Zealand have less liquidity as compared to the currencies of the UK and Japan.