Commodity Pairs in Forex Trading

Continuing from the last post on Major Currency Pairs, lets talk about here the Commodity Pairs.

Three pairs have maximum association with the commodities namely the Australian dollar (AUD), the Canadian dollar (CAD) and the New Zealand dollar (NZD). Of these the AUD/USD and NZD/USD are the pairs very much related with rise and fall in gold price.
And the USD/CAD is the pair benefiting most from any rise in oil prices.

It is always a good idea to consider the associated commodities while trading with the commodities pairs. It assists us greatly in forecasting any movements. Suppose you can see gold continuously rising, then you can think of buying the Australian dollar because it’s highly directly related to gold.


Trading the AUD/USD
Australia is the third largest exporter of gold in the world, hence the apparent high direct Connection of the AUD with this yellow metal. As mentioned above, if gold can be seen to increase in price consistently, it may be good strategy to favour a commodity based currency like the Australian dollar.
Two points are important here:
I find myself reiterating this however if you believe gold prices will continue to rise, then it may be a sound to favour the AUD, because it is around 80% positively related to gold.
As AUD/USD is directly correlated to bullion, I always like to compare the gold charts and AUD/USD to predict further movements. Consider this: If AUD/USD doesn’t break resistance level with gold breaks above a vital resistance level, chances are high that AUD/USD will break above also. Thus gold can be seen to escort the movement of AUD/USD.

Trading the NZD/USD
New Zealand’s economy is related to Australia. Hence the natural very high positive relation between the NZD and AUD. the NZD can be found to have even more positive correlation with gold prices. And this correlation can has been increasing in the recent times with the correlation being as high as 88% in past three years. Here again if you can see gold rising there’s good reason to favour a currency like NZD because with gold rise it is extremely probable to follow suit.
Thus we can find that NZD is very much directly related to gold price and a good strategy may be to buy it when gold is rising.
Comparing the gold charts with NZD/USD helps in forecasting future moves of the pair.



Trading the USD/CAD
This pair is one of the biggest benefactors of the rise in the oil prices. Canada is one of biggest exporter of oil to the US. We can see Canada will have a boost in its economy if the oil price continues to gain. Thus, oil price rise furthers the CAD. The Association between CAD and oil price has been pretty high with sometimes it being as high as 80% in last few years.
You can consider buying the CAD if you can see the oil rise in the future.
Then again, comparing the USD/CAD and the oil charts is helpful in predicting future movements of the Canadian dollar. If you can find the CAD hasn’t broken the resistance level in spite of the oil breaking above a vital level, USD/CAD is mostly likely to break above too. This explains how the movements of USD/CAD are lead by oil price.

Next up we'll see about the popular currency crosses.