Review Currency and Commodity Trading Techniques, Target Gold, Oil and CRB Currency Pairs Alternatives
Written by William Davies   
Tuesday, 22 September 2009 13:11
An analysis of currency and commodity trading refers the keen trader to the currencies of countries whose economic output and subsequent exports are chiefly commodities, such as raw materials like aluminium, oil and gold and agricultural products like sugar, soybean or livestock.
by WilliamDavies


An analysis of currency and commodity trading refers the keen trader to the currencies of countries whose economic output and subsequent exports are chiefly commodities, such as raw materials like aluminium, oil and gold and agricultural products like sugar, soybean or livestock.

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.

Movements in global commodity prices affect the Australian, New Zealand and Canadian dollar currencies, with the Australian dollar reflecting gold price movements strongly, while the crude oil price seems to have a close relationship with movements in the Canadian dollar (CAD). Though it is not linked to any particular commodity like the other two currencies, the New Zealand dollar (NZD) or "Kiwi" shows a general correlation with price changes in the Commodity Research Bureau (CRB) Index.

Let's consider what happens as gold strengthens? We can expect to observe a similar rise in the AUD/USD pair (the Aussie), as all currencies trade in pairs. This equates to a strengthening of the Australian dollar versus the US dollar, or put it another way, the US dollar is weakening in that pair. The onset of economic uncertainty in the global economy, such as recession or rising inflation, prompts investors to move into gold as it is regarded as a safe haven. Currency and commodity traders will also see how gold links to the Aussie, and trade this pair instead.

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.

About the Author:

The author, William Davies, follows the commodities markets closely and writes for an educational Commodity trading website. Learn more about how you could gain by entering the global currency and commodity trading markets.