Commodity Currencies Guide
AUD, NZD, and CAD are known as commodity currencies because their economies are heavily tied to commodity exports. Their exchange rates often move in tandem with the prices of key commodities such as iron ore, coal, oil, and agricultural products.
The Australian dollar (AUD) is influenced by iron ore, coal, and natural gas prices. China's demand for these resources directly affects Australia's terms of trade and therefore the AUD. The New Zealand dollar (NZD) is sensitive to dairy prices, lamb, and wool. The Canadian dollar (CAD) moves closely with crude oil prices because Canada is a major oil exporter, primarily to the United States.
These currencies also respond to their respective central bank policies (RBA, RBNZ, and Bank of Canada) and risk sentiment. During commodity booms, AUD, NZD, and CAD tend to appreciate. During downturns, they weaken. Traders watch commodity indices, specific commodity futures, and China's economic data for AUD and NZD, while US crude oil inventories and OPEC decisions matter most for CAD.
Trading Commodity Currencies
AUD/USD often ranges between 0.60 and 0.80 and is heavily traded during the Asian session. NZD/USD is similar but less liquid. USD/CAD is the most liquid CAD pair and is notably sensitive to weekly US crude oil inventory reports and Canadian GDP data. Commodity currencies typically offer higher yields and are popular for carry trades alongside their commodity exposure.
FAQs
Which commodity currencies are most correlated with oil?
USD/CAD has the strongest and most consistent positive correlation with crude oil prices (as CAD rises with oil, USD/CAD falls).
Why is AUD tied to China?
China is Australia's largest trading partner, absorbing the majority of its iron ore, coal, and natural gas exports. Chinese industrial production and infrastructure spending directly affect Australian export revenues.
Are commodity currencies risk-on or risk-off?
Commodity currencies are generally pro-cyclical (risk-on), meaning they strengthen when global growth expectations rise and weaken during recessions or risk-off events.