BLANTERWISDOM101

Get to Know Commodity Currency

Tuesday, January 15, 2019


A commodity currency is a currency whose value is strongly influenced by the price of an export commodity produced by a country using that currency. The fluctuations in the value of commodity currencies depend on the ups and downs of the country's main export commodity prices. In addition, the state of the trade balance associated with the country's main export commodities also influences the fluctuations in the value of commodity currencies.

In the forex market, there are three most traded commodity currencies, namely the Australian Dollar (AUD), Canadian Dollar (CAD) and New Zealand Dollar (NZD). All three are also commonly called Comdoll (Commodity Dollar).

commodity currency

Gross Domestic Product (GDP) in the countries of Australia, Canada and New Zealand is strongly influenced by the export value of the commodities it produces. As a result, the fluctuations in the exchange rate of most currencies are also determined by demand and supply, as well as changes in the prices of the main export commodities. In comparison, other major currencies such as the Swiss Franc (CHF) and Japanese Yen (JPY) are not too influenced by commodity prices.

Australia and Gold

Australia is the world's second largest gold producer after South Africa. Gold exports take the biggest share in Australian GDP, so that the fluctuations in world gold prices will greatly affect GDP and the AUD exchange rate. Other export commodities from Australia are coal, iron ore and wheat, but the correlation with AUD is not as big as gold. Only sharp movements in iron ore prices are likely to have an impact on AUD fluctuations.

Australia Commodity


The relevance of AUD status as a commodity currency is very important until Australia's Central Bank (RBA) periodically issues Commodity Index as a reference to determine the correlation between Australian export commodities and AUD in a given period. For forex traders who want to open positions on the AUD, it is better to also look at the world gold price movements before making a decision to enter the market.

Canada and World Crude Oil

Canada is one of the world's largest crude oil producing countries in addition to the United States, Saudi Arabia and Russia. Besides oil, Canada is also a major exporter of aluminum, copper and nickel.

The fluctuations in world crude oil prices in recent years have had an impact on price movements and the range of the Canadian Dollar (CAD) movement. World oil prices jumped from US $ 60 per barrel in 2006 to US $ 147 per barrel in 2008, before falling back below US $ 40 in 2009 and soaring to exceed US $ 80 in 2011. The positive correlation between world oil prices and CAD is shown in the figure below (Oil and CAD/USD).

Oil and CAD

Many factors influence fluctuations in world oil prices, including the rise and fall of the US Dollar (because oil prices are traded with US Dollar) and strong weak global demand for crude oil. But if world oil prices fall, Canada's economy as one of the main exporters of world crude oil will be disrupted. On the other hand, Japan as one of the world's major oil importers tends to benefit more. For CAD and JPY traders, it is important to look at fluctuations in world crude oil prices before making a trading decision.

New Zealand and Dairy Products

New Zealand is a country that also relies heavily on the export of its commodities. However, the main commodity is rather typical, namely dairy and meat products and wood. This makes fluctuations in the New Zealand Dollar (NZD) not influenced by one particular commodity, but the prices in general. As a commodity currency, NZD has a positive correlation with the world's main commodity price index.

In addition, Australia is New Zealand's main export destination because of its geographical proximity, so that the economic condition of New Seladia is strongly influenced by the condition of the Australian economy. NZD/USD or Kiwi has a positive correlation of around 96% against AUD/USD. For Kiwi traders, it is important to look at the world main commodity price index and AUD/USD.

The relationship between the major commodity and export currencies underlines the intermarket relationship between financial markets, especially between the forex market and commodities. In addition, by knowing the relationship between the value of the currency and the price of the world's major commodities, it will be able to help us in predicting the price movements of a currency.

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