There are three countries of signification in the forex market whose economy is closely tied up with commodities. These are Canada, the world’s 2nd largest exporter of oil; Australia, a major gold producer; and New Zealand, with a bigger basket of commodity exports. The USD/CAD pair is maybe the most common. With Canada being an exporter of oil and the States being a large importer, a go down or up in the price of oil is likely to affect this pair immediately. It’d be crazy to be trading USD/CAD without taking any notice of oil costs. In the same way, traders involved with the Australian buck have to be aware about the possible impact of changes in the value of gold. NZD pairs, however, are way more complicated because of the sundry range of goods that New Zealand exports. The general commodity price index is the one to watch here. Naturally, even where there’s a powerful economic link to a specific commodity, the effect on currency prices isn’t necessarily direct. Tiny changes in commodity costs are commonly ignored by the market.

Often, the currency price won’t react right away. This creates the ultimate situation for a forex trader with an interest in the commodity market. By identifying a trend in the price of oil, as an example, traders can often enter the USD/CAD market before a reactive trend forming in the cost of the currency pair. This is where commodity forex trading can give traders an exceedingly valuable edge.