## Want to trade forex? First understand these commodity currencies

Have you ever wondered why the prices of some countries' currencies fluctuate in tandem with major commodities? The logic behind this is actually quite simple — the economic lifeblood of certain countries depends heavily on the export of specific commodities. These currencies are known as commodity currencies, an important asset class that forex traders must understand.

## What exactly are commodity currencies?

**A commodity currency refers to a country's currency whose price movements are highly correlated with the prices of a particular raw material or bulk commodity.** This correlation is not coincidental but results from these countries' economies being overly dependent on the export of certain commodities or raw materials. These commodities can be natural resources (such as copper, iron ore, oil, natural gas) or primary processed products (dairy, timber, etc.).

Because of this strong correlation, commodity currencies are regarded by investors as "safe-haven assets." When global inflation occurs, market participants tend to hold these currencies to hedge risks, as they are backed by tangible commodities.

## What are the mainstream commodity currencies in the international market?

### Australian Dollar: The Barometer of Iron Ore

The Australian dollar (AUD) is a typical commodity currency, thanks to Australia's abundant resource advantages. Australia not only has the world's largest iron ore reserves but also ranks among the top exporters of coal and precious metals. Statistics show that the AUD's fluctuations are highly correlated with iron ore prices — when iron ore prices rise, the AUD often strengthens.

### Canadian Dollar: Oil-Driven Currency

The Canadian dollar (CAD) is closely tied to energy commodities, especially crude oil. Canada has abundant oil, natural gas, timber, and mineral resources, with its economic income mainly derived from these exports. Historical data indicates a positive correlation between the CAD and oil prices — rising oil prices lead to an appreciating CAD, while falling oil prices cause depreciation. This is why energy traders often monitor the CAD's movements.

### New Zealand Dollar: The Representative of Agriculture and Primary Products

The New Zealand dollar (NZD) reflects New Zealand's unique economic structure. As a major exporter of beef and dairy products, New Zealand's economy heavily relies on agricultural products. Additionally, exports of timber and fishery products are significant. Since agricultural prices are greatly affected by international supply and demand and climate factors, the NZD's exchange rate tends to fluctuate frequently.

### Swedish Krona: The Indicator of Industrial Metals

The Swedish krona (SEK) mainly reflects changes in the prices of industrial metals like steel. Sweden's economy is centered on exporting steel and timber, with imports mainly consisting of oil and natural gas. The USD/SEK exchange rate shows a clear correlation with global steel indices, making the krona an effective indicator for tracking industrial metal trends.

Furthermore, emerging market currencies such as the Russian Ruble (RUB), Brazilian Real (BRL), and Saudi Riyal (SAR) are also highly sensitive to commodity prices.

## The four main commodity currency pairs comparison

| Currency | AUD | CAD | NZD | SEK |
|----------|-----|-----|-----|-----|
| Country stability | High | High | High | High |
| Economic stability | High | High | High | High |
| Liquidity | High | High | High | High |
| Interest rate level | Medium | High | Low | Very low |
| Main related commodities | Iron ore | Crude oil | Beef, dairy | Steel |
| Safe-haven attribute | High | Medium | Medium | Low |

## How to trade commodity currencies? Three methods, each with its own features

### Spot Trading

Directly buying the currency, mainly through banks. This is the most traditional method, where investors physically hold the currency, but the investment threshold is relatively high (usually starting from 1000 TWD), and trading hours are limited by bank operating hours.

### Futures Trading

Buy and sell contracts to deliver at a predetermined price on a future date. Futures are generally traded on futures exchanges, with leverage around 20x, and a minimum investment of about 1000 units of the foreign currency. The advantage is 24-hour trading, but investors do not actually own the currency.

### CFD Spot Trading

Trade by paying a margin and using leverage provided by the platform. CFD trading offers maximum flexibility: very low minimum investment (starting from $0~200), leverage up to dozens or hundreds of times, 24-hour trading, no commission, and support for both long and short positions. The downside is that investors do not own the actual currency, and the risk is higher.

## The core logic of trading commodity currencies

Trading commodity currencies fundamentally involves judging the outlook of the global commodity markets. When you are optimistic about the future performance of a certain commodity, you can participate in this trend by trading the corresponding commodity currency. For example, if you believe global demand for iron ore will increase, the AUD is a currency pair worth paying attention to.

For traders looking to enter the forex market, commodity currencies have several clear advantages:

**Clear price drivers** — unlike some currencies heavily influenced by politics and policies, the trends of commodity currencies are relatively easier to track because they are backed by observable commodity price data.

**Rich trading opportunities** — commodity prices are inherently volatile, providing traders with ample opportunities and swing trading space.

**Simpler risk management** — due to their clear correlation, traders can more easily design hedging strategies and risk management plans.

Understanding the characteristics of commodity currencies and grasping the underlying commodity cycles can greatly enhance your forex trading efficiency.