Commodities play a significant role in influencing the value of certain currencies, especially those of countries with economies highly dependent on the export of natural resources. Some of the most tightly correlated currencies with commodities are the Australian dollar (AUD), the Canadian dollar (CAD), and the New Zealand dollar (NZD). Another currency that is impacted by commodities is the South African rand.
The Australian dollar is affected by the prices of coal, iron ore, petroleum, and gold. Australia is a major exporter of these resources, which explains the strong correlation between their prices and the value of AUD. The Canadian dollar is closely tied to the price of oil, as Canada is the fifth-largest producer of oil globally. The New Zealand dollar is also influenced by the prices of commodities, although the specific commodities are not mentioned in the provided sources.
The Japanese yen is another currency affected by commodity prices, particularly oil. Japan relies heavily on imported oil to supplement its domestic nuclear power capabilities, causing the yen’s value to fluctuate with oil prices.
A strong US dollar can also impact the value of other currencies and commodities, as the dollar serves as the global “invoicing” currency and holds significant purchasing power. When the US dollar appreciates, it can depress global trade growth and lead to a decline in commodity prices.
In conclusion, commodity prices have a strong influence on certain currencies, particularly those of countries with economies heavily reliant on the export of natural resources. The Australian, Canadian, and New Zealand dollars, as well as the South African rand and the Japanese yen, are examples of currencies that are closely correlated with commodity prices. Understanding these relationships can be useful for currency traders and investors in navigating the global markets.