In the FX market, there are three currency pairs commonly known as “commodity currencies,” namely USD / CAD, AUD / USD and NZD / USD. The reason for this nickname is that the economies of Canada, Australia, and New Zealand are based largely on their commodity markets. Among other things (like oil, wood, and agriculture) and through examples of financial pressures. Usually, traders maneuver their cash from the US Dollar into this currency to try to protect the value from possible losses. As a result of the nature of the three currency pairs in addition to the average market trading quantity, they will provide a new alternative for basic traders.
As a result of excessive quantity of liquidity for a currency pair such because the EUR / USD (which is essentially the most extremely traded currency pair on the earth), a big purchase or Sell order within the billions is normally simply absorbed into the market without a big impact on the present alternate charge ranges. These three commodity currency pairs, nonetheless, have a lot decrease day by day trading quantity than the Euro vs the US dollar, and so an identical order of an equally massive dimension may have a lot bigger impact on the alternate charge. Now whereas it’s true that each one currency pairs are going to have traders who place their trades primarily based on technical signals, a disproportionately great amount of trading exercise within the commodity currencies is event-driven, that means that it’s prompted by an elementary announcement of some sort.
Canada, Australia, and New Zealand all have there personal monetary establishments and central banks, and every one of them additionally has a handful of financial coverage businesses that launch stories on a quarterly or month-to-month foundation. If there’s a vital announcement by anyone in every one of these businesses (resembling a change within the present rates of interest), or a financial report comes out with a terrific diploma of variance from expectations, this may immediate a big and fast quantity of buying or selling stress into the given currency. However, when such financial stories come out in America (since every of those currency pairs has a USD element) this may immediate buying and selling stress throughout all three of those pairs.
Because the movement of values in a currency pair is basic which is driven by events. This might imply two problems that are necessary for traders who want to take advantage of this action. A quick adjustment in bullish or bearish sentiment will create fast value actions which may be a great day trading. Alternative, and in addition, this rapid adjustment can also create value gaps that can quickly reduce liquidity. It further increases spreads (relying on your software platform), and creates potential value slippage conditions. The teaching found here is that these three “commodity currency” pairs have a greater than normal response to the basic bulletin. And that almost all traders make purchases and sales on an event-driven basis that shows fast value action and good day trading alternatives.