Commodity currencies are currencies that are closely related to commodity prices such as oil, gold and agricultural products.
Countries such as Australia, New Zealand, Canada, Brazil, South Africa and Russia are commonly associated with commodity currencies due to economic performance tied to commodity exports.
However, the top 3 most traded currencies as commodity currencies are the Australian, New Zealand and Canadian dollars.
Australian Dollar (AUD)
Australia's vast natural resources make it one of the most resource-rich countries in the world.
It is a major exporter of coal and major iron ore and exports large amounts of gold and petroleum.
Thus, global commodity prices will have a direct impact on the value of the Aussie dollar.
Australia's economic dependence on China is particularly important because Beijing is Canberra's largest trading partner.
If the Chinese economy is strong, it will impact the Aussie dollar to rise, but, if the Chinese economy is weak, the Aussie dollar will fall.
The price of gold is usually in line with the value of the AUD, as Australia is a net exporter of gold.
So when gold prices go up, the Aussie dollar tends to go up.
New Zealand Dollar (NZD)
New Zealand is the world's largest exporter of dairy products and exports other farm products such as meat and wool.
Like the Australian dollar, the value of the New Zealand dollar is also affected by the economic performance of China and the Asian continent that imports products from it.
New Zealand typically has higher central bank interest rates than other countries.
Therefore, investors will get NZD to earn higher returns.
Canadian Dollar (CAD)
Canada is the fifth largest oil producer in the world and accounts for 10% of the country's exports.
Thus, the value of the Canadian dollar is closely related to the price of oil.
Canada's geographic position with the United States means that the two economies are closely linked.
In 2019, 75% of Canadian exports went to the US.
Following on from this explanation, it is hoped that the reader will be able to understand more deeply about commodity currency.
