Review Currency and Commodity Trading Techniques, Target Gold, Oil and CRB Currency Pairs Alternatives
When we consider currency and commodity trading it relates to the currencies of countries where a proportion of their output and exports are commodities, such as raw materials like copper, oil and precious metals and agricultural products like wheat, soybean or timber.
Clearly the currencies of a number of countries around the world could be called commodity currencies on this very broad definition. For the purposes of currency and commodity trading, the term relates to three major country currencies where a significant contribution to exports comes from commodities.
A look at trading charts shows how changes in global commodity prices seem correlated to the Canadian, Australian and New Zealand dollar currencies, with the Australian dollar a very good proxy for gold price movements, and the price of crude oil price does seem to correlate closely with movements in the Canadian dollar (CAD). Unlike the other two commodity currencies, the New Zealand dollar (NZD) or "Kiwi" does not seem to be linked to any particular commodity , but rather shows a close correlation with price changes in the broader measure of Commodity Research Bureau (CRB) Index.
So what happens when the gold price strengthens? We will see a similar rise in the Australian dollar in the AUD/USD pair (the Aussie), as all currencies trade in pairs. This means the Australian dollar is rising against the dollar, conversely the US dollar is weakening in that pair. When investors see economic uncertainties such as rising inflation or a recession, they may move into gold for its perceived safe haven status. Currency and commodity traders also look to the yellow metals link to the Aussie, possibly trading this pair as a proxy for gold.
Commodities contribute a significant proportion of Australias GDP and over 50% of its exports, with gold and other precious metals making a significant contribution. Trading charts show the very positive correlation of gold with the Aussie, which means a trader can either go for trading gold in the futures market or as an ETF, or follow the AUD/USD pair in the spot forex market.
Market data will show the keen observer of currency and commodity trading the significant part played in the global commodities market by Canada, especially when it comes to its role as a strategic crude oil producer. This leads to the inverse correlation observed between crude oil price changes and the movement of the USD/CAD (the Loonie) pair.
The USA is the worlds largest consumer of oil and its biggest supplier is its next door neighbour Canada. While a high crude oil price is good for the Canadian dollar it is negative for both the US economy and US dollar. If a trader is bullish about crude oil prices they could go long on the Canadian dollar in the forex market, instead of buying oil ETF's or Nymex crude futures.
When you consider these three currency pairs it's clear why currency and commodity trading followers sense a real opportunity in spot forex trading to capture commodity market movements, whether in gold, crude oil or across the broader commodities universe. With currency trading always providing a bull market, it just comes down to deciding which currency in the pair you are long or short. - 23162
Clearly the currencies of a number of countries around the world could be called commodity currencies on this very broad definition. For the purposes of currency and commodity trading, the term relates to three major country currencies where a significant contribution to exports comes from commodities.
A look at trading charts shows how changes in global commodity prices seem correlated to the Canadian, Australian and New Zealand dollar currencies, with the Australian dollar a very good proxy for gold price movements, and the price of crude oil price does seem to correlate closely with movements in the Canadian dollar (CAD). Unlike the other two commodity currencies, the New Zealand dollar (NZD) or "Kiwi" does not seem to be linked to any particular commodity , but rather shows a close correlation with price changes in the broader measure of Commodity Research Bureau (CRB) Index.
So what happens when the gold price strengthens? We will see a similar rise in the Australian dollar in the AUD/USD pair (the Aussie), as all currencies trade in pairs. This means the Australian dollar is rising against the dollar, conversely the US dollar is weakening in that pair. When investors see economic uncertainties such as rising inflation or a recession, they may move into gold for its perceived safe haven status. Currency and commodity traders also look to the yellow metals link to the Aussie, possibly trading this pair as a proxy for gold.
Commodities contribute a significant proportion of Australias GDP and over 50% of its exports, with gold and other precious metals making a significant contribution. Trading charts show the very positive correlation of gold with the Aussie, which means a trader can either go for trading gold in the futures market or as an ETF, or follow the AUD/USD pair in the spot forex market.
Market data will show the keen observer of currency and commodity trading the significant part played in the global commodities market by Canada, especially when it comes to its role as a strategic crude oil producer. This leads to the inverse correlation observed between crude oil price changes and the movement of the USD/CAD (the Loonie) pair.
The USA is the worlds largest consumer of oil and its biggest supplier is its next door neighbour Canada. While a high crude oil price is good for the Canadian dollar it is negative for both the US economy and US dollar. If a trader is bullish about crude oil prices they could go long on the Canadian dollar in the forex market, instead of buying oil ETF's or Nymex crude futures.
When you consider these three currency pairs it's clear why currency and commodity trading followers sense a real opportunity in spot forex trading to capture commodity market movements, whether in gold, crude oil or across the broader commodities universe. With currency trading always providing a bull market, it just comes down to deciding which currency in the pair you are long or short. - 23162
About the Author:
The author, William Davies, is a keen observer of commodities and pens articles for an educational online resource on trading commodities. Find out more about how you could benefit from currency and commodity trading in the world markets.
posted by X - Men @ 6:12 AM
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