Currency trading is a complex process that involves numerous considerations, one of which is the extent to which a nation’s economy depends on the export of a specific commodity or raw material. This economic dependence results in a unique category of currencies, referred to as commodity currencies, which are intimately connected to the price fluctuations of those commodities. Notably, the Australian dollar (AUD), the Canadian dollar (CAD), and the New Zealand dollar (NZD) fall into this category. These currencies originate from countries that stand as major global players in the production and exportation of commodities, resulting in their currency values being tied closely to the prices of their primary commodities.

In the unpredictable world of global finance, the first half of 2022 saw the commodities market experience extreme volatility, primarily driven by escalating geopolitical tensions. Such a volatile environment forced commodity traders to reassess their strategies and adapt their tactics to fully leverage these unique market conditions. Herein, we will explore into an in-depth analysis of the top three commodity currency pairs, providing key insights into how to strategically incorporate them into your trading approach.

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An Insight into the Top 3 Commodity Currency Pairs

1. US Dollar/Canadian Dollar (USD/CAD): An Economy Tied to Oil

Canada holds a prestigious position among the world’s top five oil producers and exporters. It maintains a robust trading relationship with its southern neighbour, the United States, which absorbs the vast majority of its oil exports. As such, the country’s economic health and financial stability are largely dictated by the price dynamics of the global oil market. When oil prices surge, there is a consequent appreciation of the Canadian dollar, illustrating the intimate link between these two factors.

Trading Tip:

A potential strategy for those trading the USD/CAD pair is to regularly compare and analyze the price charts of both oil and the Canadian dollar. This allows you to identify the key support and resistance levels, trace the overarching trends, and discern any repeating patterns. A sudden spike or dip in oil prices, which isn’t immediately reflected in the CAD chart, can often suggest an impending shift in the value of this commodity currency. Additionally, if your research leads you to forecast an upcoming rise in oil prices, it could be profitable to place a buy trade for CAD, capitalizing on this market condition.

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2. Australian Dollar/US Dollar (AUD/USD): Riding on Gold and Chinese Demand

Australia is globally recognized as one of the largest exporters of gold, an aspect that significantly influences its economic landscape. This is highlighted by the strong correlation of approximately 80% between AUD and gold prices. In addition to gold, the Australian economy heavily relies on China, its largest trading partner. Known for its significant contributions to global manufacturing, China tends to prefer Australia’s natural resources over its competitors, primarily due to their superior quality and geographical proximity. This dynamic places the health of the Australian economy at the mercy of commodity prices and the ever-changing Chinese economic climate.

Trading Tip:

Traders of the AUD/USD pair should not only closely monitor the performance of gold but also keep abreast of news concerning China’s economic situation and political developments. For instance, if there are indications that China may increase its demand for raw materials, it’s reasonable to expect a surge in Australian exports. This, in turn, is likely to drive a rise in the value of the Australian dollar.

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3. New Zealand Dollar/US Dollar (NZD/USD): Dependent on Dairy, Meat, and Wool

New Zealand sits at the top of the global stage as the world’s largest exporter of dairy products. In addition to dairy, it also extensively exports meat and wool, causing the value of the New Zealand dollar to fluctuate in tandem with the prices of these commodities, which essentially determine the revenue the country will receive. Importantly, both Australia and China import vast quantities of dairy products from New Zealand. Therefore, the value of the New Zealand dollar is also significantly impacted by the economic performance of these two countries and the demand that stems from them.

Trading Tip:

A noteworthy aspect to consider is the high correlation between the NZD/USD and the AUD/USD. This is largely because New Zealand and Australia are geographically close and have substantial trade exchanges. Therefore, comparing the price trends of the NZD/USD and AUD/USD pairs can offer valuable insights to base your market speculation.

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Commodity Currency Pairs on Deriv: Expanding Your Trading Portfolio

On the Deriv platform, traders have access to an extensive array of commodity currency pairs. This includes USD/CAD, EUR/CAD, GBP/CAD, NZD/CAD, NZD/USD, EUR/NZD, GBP/NZD, AUD/USD, GBP/AUD, EUR/AUD, AUD/CAD, and AUD/NZD. It’s crucial, before placing your trades, to conduct thorough research on the commodities that these countries produce, keeping an eye on their price patterns, trends, and influential factors. For those who are unsure about adding commodity currency pairs to their trading portfolio, Deriv also offers the option to practice trading them risk-free through a demo account pre-loaded with virtual funds.

Commodities, including hard commodities like metals and energy, and soft commodities such as grains and livestock, underpin the world economy, influencing various aspects of daily life. These commodities’ value is influenced by several factors, including supply and demand dynamics, as well as natural events like floods or pandemics.

High on the popularity charts among traders are oil and gold. Oil, being an essential source of energy, boasts a high global demand, making it a favorite among traders. Gold, on the other hand, has long been considered a store of value. It’s a popular commodity to invest in and is generally resilient to significant economic or natural disasters.

Today’s commodity traders can utilize various options to speculate on these commodities. These include futures contracts, contracts for difference (CFDs), and digital options, all of which allow participation in the commodities market without requiring ownership of the actual physical asset.

On Deriv, you can trade commodities on a variety of platforms — Deriv MT5 and Deriv X for CFDs, and DTrader, DBot, and SmartTrader for digital options. These platforms offer unique advantages to suit various trading styles. If you’re new to commodities trading or wish to test new strategies, consider signing up for a free demo account, which comes pre-loaded with 10,000 USD in virtual currency. This allows you to practice trading commodities risk-free, developing your skills and confidence before entering the real markets.