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Trading Strategies

Understanding Commodity Correlations

Commodity Prices and Currency Moves

By distinguishing the relationships between certain commodities and currencies around the world, it helps to realize that situations can change and the relationships are fluid. However, some of these relationships have been tested over time and may continue into the 21st century. Let’s take a look at a few of the most reliable correlations between commodities and the currencies they influence.

AUD/USD and Silver

The prevailing thought around trading circles is that Gold and the AUD/USD (Australian Dollar / U.S. Dollar) is the ultimate correlation to follow, however, Silver is actually more reliable. It is well known that Australia has a significant portion of their economy tied to mining, but most don’t realize the scale with over 2% of the workforce employed by it, over 5% of the GDP relying upon it, and it contributes around 35% of the nation’s exports. Therefore, the fluctuations of the metal market have a large impact on the outlook for the AUD.

USD/CAD and West Texas Intermediate Crude Oil

West Texas Intermediate or WTI is the main type of oil traded in North America and is incredibly influential to the Canadian economy. It’s no secret that the U.S. is the world’s foremost consumer of oil (at nearly 19 million barrels per day (bpd), well ahead of 2nd place China at almost 11 million bpd), but many people don’t realize how they get said oil. Many make the false assumption that Saudi Arabia is the nation with which it relies on a majority of its oil imports, but a third of oil imports come from Canada, with Saudi Arabia contributing just over 17%. Interestingly, out of the 19 million bpd the US consumes 10 million bpd are produced in-house, but since Canada exports so much oil to their larger neighbors to the south, their currency is intrinsically tied to the value of the black gold.

USD/NOK and Brent Crude Oil

Brent comes from north sea oil, so it trades mostly in Europe. Although many countries drill for oil in the north sea, it is estimated that 54% of the north sea’s oil reserves are in Norway, so the impact on prices is significant. On the world stage, Norway is the fifth-largest oil exporter and the third-largest gas exporter, accounting for more than 20 percent of Norway’s GDP.

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