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Forex Answer Man - What are Commodity pairs?

Posted by Jeff Baskin on Apr 1, 2014 10:51:00 AM

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Question: What are commodity pairs?


In forex, the commodity pairs consist of the heavily-traded currency pairs and contain the Canadian, Australian and New Zealand dollars as part of the pairing. The three commodity pairs are: USD/CAD, AUD/USD, NZD/USD. These pairs are highly correlated to commodity fluctuations in the world markets and are the most heavily traded commodity pairs in forex. The Canadian dollar is tied to Oil beacuase Canada is the world's 6th largest producer of Oil. The Australian Dollar and New Zealand dollar are tied to Gold because Australia is the 2nd largest producer of Gold in the world.

Forex traders often trade these commodity pairs to gain exposure to commodity (especially oil) volatility. Although there are many countries with large natural resource and commodity reserves, such as Russia, Saudi Arabia and Venezuela, the commodities of many of these nations are usually highly regulated by their domestic governments or are thinly traded. The Canadian, Australian and New Zealand dollars are traded at high volumes and are therefore very liquid in the forex market.


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