There are currencies of countries that are heavily reliant on commodity export. Hence, they are being called commodity currencies. It is important to note by any currency trader that the value of commodity currencies climbs and drops and is directly proportionate with the value of the country’s major commodity exports. Commodity currencies are then determined with respect to the value of the commodity as well as the country’s trade balance.
Fact is, currencies are affected by a number of factors like supply and demand, politics, interest rates, economic growth and many others. In this article you can learn the top world currencies and their strong relationship to their major commodities. Here are the top three currencies that have the toughest correlation with commodity prices.
Australia is known as the second largest gold producer in the world after South Africa. It is gold exports that have a large percentage of the GDP of Australia. Thus, changes in gold prices can heavily impact Australia’s GDP and its currency value.
In a condition where gold production declines, it can be a strong indicator of a weakening Australian Dollar. Other than gold, oil is also another commodity tied to the Australian economy. Export of petroleum products is booming in the country and Australia gains a net of over $13 billion per year.
Canada is known as the sixth-largest producer of oil in the world. It is considered as a developed nation to have a net export of oil. Previously, Canada profited an average of more than $60 billion a year. Also, Canada is recognized for another notable commodity which is aluminum. It can add to at least $8 billion in revenue every year to the country.
Oil is one of the basic necessities in the world. Developed countries would struggle without oil. If oil prices decline, it is a nightmare for the producers while the consumers enjoy a greater purchasing power. As a net oil exporter, when there are declines in oil prices, Canada is greatly affected, whereas in Japan, a known major net oil importer, benefits on that circumstance.
New Zealand Dollar
For this country, its exports do not heavily rely on one commodity alone. Yet, the most significant commodities, it has would be timber, meat and dairy products. In reality, New Zealand has a vast category of product exports, yet it also has gold production. However, 16% of New Zealand’s gold is being exported to Australia since these two countries have developed interdependence in their economies which yields to a positive correlation of 96%.
In a long term sense, the correlation involving commodity currencies and their export commodities becomes significant as time passes by. Commodity prices affect currency prices; currency traders can take such condition as an opportunity to gain profit. If you are into trading commodity currencies, the best way is to refer to commodity prices and keep an eye on movements, particularly, in the gold and the oil market. The bottom line is, commodity prices drive currency movements.
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