As strange as it might seem to beginning forex traders, there are some commodity currencies in the forex market. We’ll explain how that is possible and how these currencies should be approached. From the start, we need to tell you that when trading commodity currencies you need to incorporate additional criteria in your fundamental analysis. That is the evolution and factors that might impact the commodities market.
Why commodity currency?
Well, they are called that way because the country which issues them rely heavily on commodity exports. Statistically, when the prices of commodities are going up, so does those currencies, due to an increase in exports profitability.
The main commodity currencies are the Australian Dollar, New Zealand Dollar, and the Canadian Dollar. We mention other currencies like South African Rand, Brazilian Real, Russian Ruble and Chilean peso. However, the first three are the most important and the pairs formed with them + the US dollar are among the most liquid.
The AUDUSD, NZDUSD, and USDCAD are easier to trade, due to high liquidity and small fluctuations range. Volatility is low and that means it is the perfect environment, especially for beginning forex traders.
Also, another key interesting thing is that in the case of the Australian dollar and New Zealand dollar, the interest rates practiced by their central bank is higher than in Japan or Eurozone, where are zero or negative.
That makes them suitable for carry trade and traders who are willing to keep positions open for longer periods are actively trading them. Trading commodity currencies can be tricky, however, since sudden swings in the price of gold or oil can influence the price of currencies as well.
You will need to actively do technical analysis for commodities as well, not just for the pair you are wanting to trade. In that way, you’ll have an edge and manage to anticipate moves in the commodity markets, which could then lead to moves in the price of commodity currencies.
Forex traders that want to trade commodity currencies must take into account the details mentioned above and a deeper understanding of the fundamental framework is also needed.