In the international trade market there are three forex pairs which can be generally known as the “commodity currencies,” that are the USD/CAD, AUD/USD and the NZD/USD. The cause for this nickname is that the economies of Canada, Australia, and New Zealand are largely based mostly on their commodity markets (akin to oil, timber, and agriculture) and through instances of financial duress it’s common for merchants to maneuver their cash from the US greenback into these currencies to try to hedge any potential losses. Due to the character of those three forex pairs in addition to their common market buying and selling quantity, they’ll current a novel alternative for basic merchants.
Due to the excessive quantity of liquidity for a forex pair such because the EUR/USD (which is essentially the most extremely traded forex pair on this planet), a big purchase or promote order within the billions is normally simply absorbed into the market with out a big impact on the present trade charge ranges. These three commodity forex pairs, nevertheless, have a lot decrease day by day buying and selling quantity than the Euro vs the US greenback, and so an analogous order of an equally massive measurement might have a a lot bigger impact on the trade charge. Now whereas it’s true that every one forex pairs are going to have merchants who place their trades based mostly on technical alerts, a disproportionately great amount of buying and selling exercise within the commodity currencies is event-driven, that means that it’s prompted by a basic announcement of some type.
Canada, Australia, and New Zealand all have there personal monetary establishments and central banks, and every of them additionally has a handful of financial coverage companies that launch studies on a quarterly or month-to-month foundation. If there’s a vital announcement by any considered one of these companies (akin to a change within the present rates of interest), or an financial report comes out with an ideal diploma of variance from expectations, this will immediate a big and fast quantity of shopping for or promoting stress into the given forex. But when such financial studies come out within the United States (since every of those forex pairs has a USD part) this will immediate shopping for and promoting stress throughout all three of those pairs.
Since value motion in these forex pairs is of a basic event-driven nature, this will imply two vital issues for merchants seeking to capitalize on these actions: speedy adjustments in bullish or bearish sentiment will create speedy value actions which might current an excellent day buying and selling alternative, and likewise these speedy adjustments also can create value gaps which might quickly lower liquidity, enhance spreads (relying in your software program platform), and create potential value slippage conditions. The classes to be realized listed here are that these three “commodity currency” pairs have a larger-than-normal response to basic bulletins, and that the majority merchants are making their purchase and promote choices on an event-driven foundation which implies swift value actions and good day buying and selling alternatives.
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