By Brian Perry
The commodity currencies are currencies from countries that possess large quantities of commodities or other natural resources. Natural resources often constitute the majority of the countries' exports, and the strength of the economy can be highly dependent on the prices of these natural resources. Countries that are rich in natural resources include
The Canadian Economy
The Australian Economy
The New Zealand Economy
Factors Influencing Commodity Currency Movements
The primary determinant of the movement of the commodity currencies is the price of commodities. As a general rule, when the price of commodities is high, the currencies of the commodity producers also strengthen. When commodity prices are weak, the currencies weaken. During times of strengthening commodity prices, the economies in commodity-producing nations usually grow rapidly, which can lead to high domestic interest rates. High interest rates can make these countries popular with the carry trade, in which investors sell low-yielding currencies and reinvest the proceeds in high-yielding currencies. These carry trades can drive the prices of commodity-producing currencies higher than they otherwise might have been. However, when financial conditions change, the carry trade can be reversed very quickly, which can result in capital flight from the destination country and a swift decline in the currency value.
Trading the Commodity Currencies
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