Commodity currency trading is a focused segment of currency trading which has a great potential especially for the traders who are interested in commodities like Gold and Oil. In the foreign exchange markets Commodity Currency Trading is done for the currencies of the country whose main exports are of commodities. Most dominant commodities of all are Gold and Oil; others could be metals, agricultural commodities, precious stones, etc.

Many countries globally are majorly into the exports of a particular commodity but their currencies are not popular enough that the foreign exchange traders would want to take a position in them. Below mentioned are the three currencies that can be termed as commodity currencies:

1.)    Australian dollar (AUD)

2.)    New Zealand dollar (NZD)

3.)    Canadian dollar (CAD)

Additionally, these three currencies are liquid enough to keep the forex traders interested in dealing in them.

Needless to say but the commodity currencies prices are strongly correlated to the price of commodity. So the ups and downs in the value of these currencies definitely have an impact on the price fluctuations on commodity currency trading. So for example any fluctuations in the price of oil may affect the price of Canadian dollar since Canada is the second biggest exporter of Oil. In the same manner New Zealand does not export one single product but it deals into a range of different commodities so big fluctuation in the General Commodity Index may affect the price of New Zealand currency. A trader can deal in any of these currencies against major foreign exchange like US dollars or the likes. However correlation of market movements can be stronger if the trade is being carried out paring with a country’s currency who is a major importer of the commodity which the other country is exporting.

If we are looking at the commodity currency trading pair like USD Vs CAD, then on one side we have a country that heavily exports oil which is Canada while on the other side we have a country that heavily imports oil which is United States of America, this would definitely impact price of the pair if there is a major price movement in oil. A trader needs to keep in mind that only the major fluctuations in the price of a commodity would have an impact on the price of currency, while small ups and downs would not affect the currency prices.

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