Review Currency and Commodity Trading Techniques, Target Gold, Oil and CRB Currency Pairs Alternatives
As a keen trader if you study currency and commodity trading you will discover that it relates to the currencies of countries where commodities contribute a significant proportion of economic output as well as exports. These could be metals like copper, or crude oil, or agricultural products like sugar and coffee.
It would of course be correct to call the currencies of a number of countries around the world commodity currencies if we use a very wide description. For keen followers of currency and commodity trading however, the term refers to three major countries where commodities represent a substantial component of output and exports.
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.
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.
A substantial proportion of Australia's output comes from commodities and well over half its exports are derived from these sources, with precious metals like gold a major player, along with copper and coal. A glance at trading charts shows a very positive correlation of gold and the Aussie. So a focused trader could either decide to trade gold futures or an ETF, or use the forex market for AUD/USD pair exposure.
Followers of currency and commodity trading will know that Canada is a major commodities producing nation and specifically one of the worlds largest crude oil producers. Accordingly, there is a fairly strong negative correlation between movements in the USD/CAD (the Loonie) pair and the price of crude oil.
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. - 23310
It would of course be correct to call the currencies of a number of countries around the world commodity currencies if we use a very wide description. For keen followers of currency and commodity trading however, the term refers to three major countries where commodities represent a substantial component of output and exports.
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.
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.
A substantial proportion of Australia's output comes from commodities and well over half its exports are derived from these sources, with precious metals like gold a major player, along with copper and coal. A glance at trading charts shows a very positive correlation of gold and the Aussie. So a focused trader could either decide to trade gold futures or an ETF, or use the forex market for AUD/USD pair exposure.
Followers of currency and commodity trading will know that Canada is a major commodities producing nation and specifically one of the worlds largest crude oil producers. Accordingly, there is a fairly strong negative correlation between movements in the USD/CAD (the Loonie) pair and the price of crude oil.
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. - 23310
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 world currency and commodity trading markets.
posted by Mr. Forex at
11:28 AM
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