What is the Influence of Commodity Currencies on the Forex Market?

[Suba]

As we know, many forex traders lose money due to their failure to predict currency movements, which are heavily influenced by various factors, one of which is commodity currencies. So, in general, a commodity currency is a country's currency whose price fluctuations are heavily influenced by its export commodities (market prices are not controlled by the central bank).

Therefore, in the forex market, the value of a country's exports can directly influence the exchange rate of its fiat currency. Therefore, forex traders need to be cautious when using currencies influenced by commodity currencies, either as a base currency or as a quote currency. In other words, a commodity currency is a group of currencies whose value is influenced by the price of that country's export commodities. For example:

The Australian Dollar (AUD) is influenced by iron ore, coal, and gold.
The Canadian Dollar (CAD) is influenced by petroleum.
The Canadian Dollar (COP) is influenced by oil and coffee.
The Non-Cash Currency (NCD) is influenced by milk.
The Russian Ruble (RUB) is influenced by oil, gas, and natural gas.
The South African Rand (ZAR) is influenced by gold, platinum, and diamonds.
Etc.

 

[gwolf666]

That’s a very accurate explanation of how commodity currencies operate, and it’s a topic that many forex traders underestimate. In my opinion, understanding the link between commodities and currency values is one of the key aspects of long-term success in forex trading. For instance, when oil prices rise, the Canadian Dollar often strengthens because Canada is a major oil exporter. The same logic applies to the Australian Dollar when there’s a boom in metal prices. However, this relationship also creates volatility. Traders who fail to monitor global commodity trends can easily be caught off guard by sudden market shifts. I think the best approach is to combine technical analysis with a solid understanding of global economic indicators—especially commodity price reports. Moreover, traders should diversify and avoid putting all their exposure into commodity-dependent currencies, as global events like wars, natural disasters, or sanctions can drastically affect their performance overnight.