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Commodity Currencies

Currencies of countries that rely heavily on the export of commodities are often referred to as 'commodity currencies.'  An important factor that any Forex trader should consider is that the value of commodity currencies usually rise and fall in tandem with the value of the country's main commodity exports.  Both the value of the commodity and the country's trade balance, with respect to the commodity, are significant factors in the valuation of commodity currencies.

The most commonly traded commodity currencies are those of Canada, New Zealand and Australia.  All three of these countries have currencies named "dollar," therefore these commodity currencies are often referred to as 'comdolls.'  While other countries export commodities as well, the exports of these three countries make up a larger proportion of their annual Gross Domestic Product (GDP).  As such, fluctuations in the value or quantity exported of commodities in these countries will have a more significant impact on the country's currency.

Canada 

Canada is a significant exporter of oil.  While most countries import more oil than is exported, Canada is one of the only developed nations to have a net export of oil.  Over the last few years, export of petroleum products has averaged over $60 billion a year.  Another notable commodity export for Canada is aluminum, which adds another $8 billion in revenue every year.  Canada has also experienced dramatic growth in export of other precious metals including zinc, copper and nickel - each showing year-over-year increases of over 50%.

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Australia

Australia is the world’s second largest producer of gold, behind South Africa.  Why is this important?  Gold exports make up a large percentage of the country’s GDP, so changes in gold prices will have a significant impact on the country’s GDP and the value of its currency.  And, if production of gold is shown to decline it could also signal a potential weakening of the Aussie Dollar.  While Australia is known among Forex traders for its gold exports, oil is also a significant export commodity.  Export of petroleum products has been growing at a faster rate in Australia than any other export over the last few years, currently netting the country over $13 billion a year.

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New Zealand

New Zealand's exports are not dominated by any one commodity, but the most notable ones include timber, dairy products and meat products.  Various commodity indices have be shown to be worthwhile long-term indicators of the New Zealand Dollar's value.

How to Trade Commodity Correlations

The positive correlation between the commodity currencies and their export commodities is significant, but mostly in the long-term.  Short term spikes in commodity prices usually mean little for the correlated currency.  Rather, once a long-term trend in commodity prices becomes apparent, the correlated currency pairs often follow. Commodity prices often lead currency prices, giving Forex traders a great opportunity for profit.