In case you’re new to forex, here’s the one line synopsis of what the foreign exchange market is: How many - will I get for - ?
How many yen will I get per U.S. dollar?
How many U.S. dollars will I get per euro?
So basically depending upon the strength or weakness of the U.S. dollar you may be able to get more or less of another currency in exchange. I think of it as the airport analogy. Let’s say we all jump on a flight to Paris and upon landing we look to exchange our pocketful of U.S. dollars for euros. The forex rate will dictate what we get.
Traders and investors track, analyze, and use this price movement to determine whether they feel this rate will go higher or lower.
That brings us to commodity currencies or “comm dolls.” Maybe you have heard a little about what these pairs are and how they behave. My take is a little different, so let’s start with the basics. Generally speaking, commodity currencies are just what their name would suggest: a currency pair that has a strong correlation back to a particular commodity. Simple, right? Well, not so fast.
The Australian dollar/U.S. dollar, New Zealand dollar/U.S. dollar, and U.S. dollar/Canadian dollar are the three pairs you will most commonly call “comm dolls.” Let’s use the U.S. dollar/Canadian dollar or “canada” as an example. The “canada” has a relationship to the energies complex, meaning crude oil, heating oil, natural gas. It moves, however, with a strong correlation to crude oil. Why? Well, consider that the country of Canada is one of the world’s leading exporters of crude oil (from www.eia.doe.gov/ pub/oil gas/petroleum/data publications/company level imports/current/ import.html).
You better bet the supply and demand of crude affects the Canadian economy. But is that the end of the story for commodity currencies? No, not even close. You see this pair has a correlation to the U.S. dollar as well. Remember it’s the U.S. dollar/Canadian dollar pair. We not only have to consider the impact of crude oil on the Canadian dollar itself but also how the U.S. dollar is moving against the Canadian dollar.
I am going to go into great depth later on about these relationships and my Forex Market Pulse. For now, though, think about this: Does crude oil affect the Canadian economy alone? I think we have seen what high crude oil prices have done to the U.S. economy as well. So bottom line? All pairs that have a relationship back to the U.S. dollar will have a certain amount of impact from crude oil. And that means that all U.S. dollar pairs can be considered comm dolls to a certain extent. Now that’s not something you will hear from most traders, but I’m here to tell you that’s the way it is.
So, there’s always a bull market somewhere in the forex. When you consider all the different countries, commodities, and the relationship they have with one another, it’s easy to begin to understand that while some currencies are being beaten down, others are rallying in comparison or are considered safe haven currencies. This is why you will always find that some pairs are heading lower while others are ripe for buying.
How many yen will I get per U.S. dollar?
How many U.S. dollars will I get per euro?
So basically depending upon the strength or weakness of the U.S. dollar you may be able to get more or less of another currency in exchange. I think of it as the airport analogy. Let’s say we all jump on a flight to Paris and upon landing we look to exchange our pocketful of U.S. dollars for euros. The forex rate will dictate what we get.
Traders and investors track, analyze, and use this price movement to determine whether they feel this rate will go higher or lower.
That brings us to commodity currencies or “comm dolls.” Maybe you have heard a little about what these pairs are and how they behave. My take is a little different, so let’s start with the basics. Generally speaking, commodity currencies are just what their name would suggest: a currency pair that has a strong correlation back to a particular commodity. Simple, right? Well, not so fast.
The Australian dollar/U.S. dollar, New Zealand dollar/U.S. dollar, and U.S. dollar/Canadian dollar are the three pairs you will most commonly call “comm dolls.” Let’s use the U.S. dollar/Canadian dollar or “canada” as an example. The “canada” has a relationship to the energies complex, meaning crude oil, heating oil, natural gas. It moves, however, with a strong correlation to crude oil. Why? Well, consider that the country of Canada is one of the world’s leading exporters of crude oil (from www.eia.doe.gov/ pub/oil gas/petroleum/data publications/company level imports/current/ import.html).
You better bet the supply and demand of crude affects the Canadian economy. But is that the end of the story for commodity currencies? No, not even close. You see this pair has a correlation to the U.S. dollar as well. Remember it’s the U.S. dollar/Canadian dollar pair. We not only have to consider the impact of crude oil on the Canadian dollar itself but also how the U.S. dollar is moving against the Canadian dollar.
I am going to go into great depth later on about these relationships and my Forex Market Pulse. For now, though, think about this: Does crude oil affect the Canadian economy alone? I think we have seen what high crude oil prices have done to the U.S. economy as well. So bottom line? All pairs that have a relationship back to the U.S. dollar will have a certain amount of impact from crude oil. And that means that all U.S. dollar pairs can be considered comm dolls to a certain extent. Now that’s not something you will hear from most traders, but I’m here to tell you that’s the way it is.
So, there’s always a bull market somewhere in the forex. When you consider all the different countries, commodities, and the relationship they have with one another, it’s easy to begin to understand that while some currencies are being beaten down, others are rallying in comparison or are considered safe haven currencies. This is why you will always find that some pairs are heading lower while others are ripe for buying.
