Commodity Currencies With ForexGen

What is a commodity currency?

In this crazy trading universe we call the Forex, a commodity currency is a currency whose country's exports are largely comprised of raw materials (precious metals, oil, agriculture, etc.).

There are dozens of countries that fit this description, but the most actively traded currencies are the New Zealand Dollar, Australian Dollar, and the Canadian Dollar. Because their currencies are all called dollars, they are also known as the commodity dollars or "Comdolls" for short.

These three currencies are among the major currency pairs, which mean they have great liquidity and volatility for active trading.

How does a commodity affect the commodity currencies?

Processed material that can be converted by manufacture (Raw materials) compose such a large share of these countries exports, a goes up in commodity prices can possibly lead to a rise in the value of a country's currency, and vice versa.

Let's have a peek at the major commodity currencies and see how much their movement accompanies to certain commodities...
Canadian Dollar and Oil
Oil is the life-giving force of the industrialized world and thus a highly watched and traded commodity. While gold is often called “Black Gld”, many countries that create “black crack” and hold huge reserves of "black crack" manage to benefit from rises in oil prices, including Canada.

Canada is the world's second largest producers of oil (black crack dealers) and holds oil reserves (black crack stash) after Saudi Arabia which makes Canada very reliance on its most prized commodity. It is also the largest provider to the world's biggest oil consumer (black crack addict) - the United States. Because oil is such a big part of the US economy, rising in its prices manage to have a negative affect on U.S. equities and the U.S. Dollar.

Rising oil prices manages to be good for Canada and bad for the United States. While dropping oil prices manages to be bad for Canada and good for the United States. - How can we apply this idea in the Forex market? In fact let's take a quick look at the following chart spread over oil prices and the USD/CAD:

As you see from the chart above, the price movements USD/CAD and Oil are in an inverse order or manner correlated from each other – which means as oil trends higher, USD/CAD, tends to trend lower and vice versa.

Since January 1988, USD/CAD and Oil have had about a 68% inverse correlation to each other. As a trader, knows that this can add another tool to your toolbox when analyzing USD/CAD and help you make long term trading decisions