Correlations Between AUD/USD and Commodities

To be able to make a profit when trading, you need to predict where the market is going. Currencies are moved and influenced by a slew of factors, among them interest rates, politics and economic growth and decline. Economic movements depend on the country's commodity prices. The Australian dollar and the New Zealand dollar, for example, are top currencies with very close ties to commodities like oil and gold prices.

Professionals don't confine their trading to commodities alone, currencies trading allows them to earn interest and take advantage of similar outlooks like oil. Let's take currency trader X as an example. X trades the AUD/USD. A purchase back in 2009 will allow X to earn up to 3 percent interest (Australian central bank rate minus the zero percent rate paid for the shorted USD) if Australian interest rates stay pegged at 3.25 percent and US rates stay at 0.25 percent for the whole year.

It's not always a win-win situation, however. Like regular trading, currencies trading involve risk. You can never never learn too much about currency trading. To protect your capital, you would do well to educate yourself about commodity pricing and how they affect currency movements. Remember that there is a lag in the impact of pricing on currency movement, so monitor oil and gold charts and see how fast the market responds.

Relationships and Correlations

Commodity-currency correlation helps traders predict some market movements. Timing and following oil and gold charts are essential if you trade in Forex. Traders who do not understand the why's and how's behind relationships disruptions can pay a high price.

Australia is the world's third largest gold producer; trading the Australian dollar is similar in many ways to gold trading. Usually, this can be taken to mean that the dollar rises when gold prices rise. New Zealand's proximity to Australia makes it an export destination and this also results in close economic ties. In fact, the AUD/USD and NZD/USD have had a 96% positive correlation over the same period.

It's useful track trading and know that there is no stable, historical algorithmic pattern that you can rely on to predict the relationship between the US dollar and commodities. In general, price of gold (POG) hedges against a weak USD, and a strong USD signals a drop. However, the price of gold and the US dollar can also trend upward at the same time.