Master Commodity Currency Trading: Understanding Major Currencies and Operating Methods

What Are Commodity Currencies? An In-Depth Explanation of Core Features

Commodity currencies refer to national currencies whose exchange rate movements are highly positively correlated with the prices of certain raw materials or bulk commodities. This correlation is not coincidental but stems from these countries’ economic lifelines—their export revenues heavily depend on the sales of specific commodities. These commodities cover a wide range, including natural resources like copper and iron ore, as well as industrial semi-finished products like dairy.

Currently, active commodity currencies in the international forex market include the Canadian dollar (CAD), Australian dollar (AUD), New Zealand dollar (NZD), and Swedish krona (SEK). Additionally, the Russian ruble (RUB), Brazilian real (BRL), and Saudi riyal (SAR) are also sensitive to fluctuations in commodity prices.

Why Are They Considered Safe-Haven Assets?

Investors generally view commodity currencies as safe-haven assets because of their underlying support—the commodities themselves possess relatively stable intrinsic value. Due to supply and demand constraints, the prices of many commodities do not fluctuate infinitely and can instead serve as a hedge against inflation. Holding currencies linked to commodities can effectively resist the risk of purchasing power decline when markets face inflation threats.

Deep Dive into the Four Mainstream Commodity Currencies

Australian Dollar: The Barometer of Iron Ore

The history of the Australian dollar dates back to the British colonial period when Australia used the pound. After gaining independence in 1901, the federal government issued the Australian pound, which was later renamed the Australian dollar (currency code: AUD), and has been in use ever since.

The reason why the AUD is classified as a commodity currency lies in Australia’s economic structure. The country is rich in natural resources, with iron ore and coal exports ranking among the top globally, along with significant exports of precious metals and natural gas. Therefore, the AUD’s fluctuations are closely tied to the international prices of these bulk commodities. Data from 2020 to 2023 shows that the AUD’s volatility closely tracks iron ore prices.

Canadian Dollar: The Loyal Follower of Oil Prices

The CAD also originated during British colonial rule. After Britain took control of Canada from France, the pound was initially the official currency. It wasn’t until Canada’s independence in 1867 that the country began issuing its own currency—the Canadian dollar, which was renamed several times before settling on “dollar” (currency code: CAD).

Canada is classified as a commodity currency country, driven primarily by its abundant natural resources. Its economic pillars include exports of natural gas, oil, timber, and various minerals. The CAD’s exchange rate fluctuations are strongly correlated with these commodities, especially crude oil. Market performance from 2020 to 2023 indicates that the CAD’s movements are highly related to the benchmark price of Western Canadian Select heavy crude oil.

New Zealand Dollar: The Spokesperson for Agricultural Exports

The NZD’s predecessor was the New Zealand pound. As New Zealand’s economy developed and international trade expanded, the government introduced its own currency system in 1967, issuing the first banknotes and coins. The New Zealand dollar (currency code: NZD) replaced the old currency, and “dollar” gradually became its common name.

The NZD is recognized as a commodity currency due to New Zealand’s export structure. The country’s main exports include beef, dairy products, forestry products, fishery products, and minerals. The international prices of these commodities are influenced by supply, demand, and weather conditions, causing fluctuations in the NZD exchange rate.

Swedish Krona: The Indicator of Steel and Industrial Products

The origin of the SEK dates back to the mid-19th century when Sweden circulated a silver coin with a crown design called “Krona” (meaning “crown”). After several currency reforms, Sweden officially adopted the gold standard in 1873, introducing the Swedish krona (currency code: SEK) as the national official currency.

The SEK’s status as a commodity currency stems from its economic characteristics: exports mainly consist of timber and steel, while imports are primarily oil and natural gas. The value and exchange rate of the SEK are closely linked to Sweden’s import and export commodities, especially steel prices. Comparing the USD/SEK exchange rate with the Dow Jones Steel Index from 2020 to 2023 shows a very strong correlation.

Quick Comparison Table of the Four Major Commodity Currencies

Three Trading Methods for Commodity Currencies

Investors participate in commodity currency trading mainly through three approaches, each with advantages and disadvantages:

Spot Trading: Direct Holding of Currency

Spot trading involves directly purchasing and holding the commodity currency. The key feature is that investors truly own the currency. Transactions are mainly conducted through banks, with trading hours limited to bank operating hours. The minimum investment threshold starts from NT$1,000.

Futures Trading: Contract-Based Leverage Operations

Futures trading involves both parties agreeing on a contract to buy or sell a specified amount of the commodity currency at a predetermined price on a future date. Trading venues are usually futures exchanges or securities exchanges, offering 24-hour trading. Futures use margin systems, with minimum investments around 1,000 units of the foreign currency, and leverage ratios typically around 20x. Traders do not actually own the currency, and transaction fees vary by platform.

CFD Spot Trading: Flexible Spread Contracts

CFD (Contract for Difference) spot trading allows investors to buy and sell specific commodity currencies by paying a margin and utilizing leverage provided by CFD platforms. Profits come from the difference between the current price and the entry price. Investors do not hold the actual currency. CFD trading occurs on specialized platforms, supports 24-hour trading, with minimum investment thresholds as low as $0 to $200, and leverage can reach dozens or hundreds of times. Usually, no commission is charged.

Detailed Comparison of the Three Methods

Key Considerations When Choosing Commodity Currency Trading

Before participating in commodity currency trading, investors should evaluate based on their own needs:

Capital Scale: Spot trading is suitable for long-term investors with ample funds; futures and CFDs are more suitable for participants with limited margin capacity.

Trading Cycle: Investors seeking long-term hedging can choose spot; those aiming for short-term gains from volatility may consider futures or CFDs.

Risk Tolerance: Higher leverage increases both potential gains and risks exponentially. Beginners should start with low leverage.

Trading Frequency: The 24-hour trading mechanism is more friendly to intraday and ultra-short-term strategies; spot trading is limited by banking hours.

Cost Considerations: Spot trading may involve currency exchange fees; futures and CFDs have different fee structures that need to be compared individually.

Because of their close ties to physical commodities, commodity currencies offer investors unique trading opportunities. Regardless of the chosen method, a thorough understanding of their characteristics and market logic is essential for successful trading.