4 currency more strongly related to commodities
Commodity Pairs – Pairs currency “commodity”
Gold and its relationship with the Forex market
Oil and its relationship with the Forex market
Commodities (raw materials), as well as the currencies in Forex, are heavily influenced by market fundamentals. In particular, gold and oil have an important relationship with the Forex market, and can be used as indicators when trading the currency market.
What are Commodities or Commodities?
Basically, speaking of raw materials, we are referring to oil, gold and copper among others. If you want to go deeper on the subject, you can read the article on what are the raw materials.
correlations
As mentioned earlier, the prices of raw materials or commodities are affected by market fundamentals.
Particularly gold and oil have a very important relationship with the Forex market, which can be favorably used when operating.
There are 4 currencies that are more closely linked to commodity prices:
The Australian-dollar (AUD) or Aussie.
Canadian Dollar (CAD) or Loonie.
The New Zealand Dollar (NZD) or Kiwi.
Swiss Franc (CHF) or Swissie.
The Australian dollar is correlated with the gold price, being Australia’s 3rd largest gold producer and one of the strongest economies in the world.
The Canadian dollar is correlated with the price of oil, being this nation one of the largest producers of this raw material.
The New Zealand dollar is correlated with the gold price.
The Swiss Franc is also strongly linked to the price of gold, due to its huge reserves (40%) holding this metal in relation to its currency.
Currency pairs “Commodity”
There are 3 currency pairs known as “pairs commodity” or commodity pairs, due to its strong correlation with the movement of gold prices and oil primarily.
These pairs are:
- USD / CAD: Correlated with the price of oil.
- USD / AUD: correlated with the gold price.
- USD / NZD: correlated with the gold price.
Gold and its relationship with the Forex market
Although the United States is the second largest gold producer, behind South Africa, gold is not normally moves in line with the US dollar. Rather they tend to maintain an inverse correlation. This is because in times of geopolitical uncertainty investors tend to move away from the US dollar to gold as a safety measure, as a “safe haven”.
In Forex, no currency is considered safer and more stable than the Swiss franc. Its political neutrality and the fact that 40% of its monetary reserves are backed by gold, give it an aura of safety during periods of uncertainty.
For these reasons the pair CHF / USD has a strong positive correlation with the gold price. Both Canada and Australia have large reserves of precious material and both countries have highly developed mining sectors. Autralia is the 3rd exporter of gold mining contributing about 8.5% of its GDP.
Canada is the 3rd largest gold producer.
Currency pairs AUD / USD, NZD / USD, USD / CHF tend to move in line with gold closely, given the other currency has natural and political ties with gold,
AUD / USD has a strong positive correlation with gold by the fact that Australia is the third largest exporter of this raw material.
Relationship Gold and Forex Market
The correlation between gold and currencies is more complex than there is gold.
The Canadian dollar is the currency most influenced by changes in the price of oil. Total Canadian oil reserves were 178.9 billion barrels few years ago, just below Saudi Arabia.
If oil prices rise, the CAD is expected to follow them closely.
Relationship between Securities Market US USD
A strong stock market usually suggests that the dollar should be strengthened. This is because investors are betting the currency to participate in the profits. This happened in the bull market (bull market) in the early 90’s.
However, more recently, the dollar and the US stock market have not moved online. This is because more and more, American companies earn their income outside the United States.
Using Correlations between currencies to trade Forex
Often, currency pairs are closely related to each other, and this is something that can be used advantageously when trading Forex. Correlations Analysis helps to understand these relationships. positive and negative correlations between pairs are measured in decimal form and serve to reflect the extent to which operating online or divergent to one another.
The closer the number is to 1, the stronger the positive correlation. Conversely, the stronger the closer to -1, the negative correlation. A correlation of 0 would indicate a completely random relationship. The correlation between currencies is measured between specific time periods, and it is important to note that these relationships will or may change over time.
Correlations can help Forex traders to manage their risk exposure using a pair with a negative correlation as a hedge. A positive correlation between two currency pairs can be used as a leading indicator.