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Fundamental analysis – Chapter V. – Commodity prices

Sunday, Dec 21 2014
Fundamental analysis – Chapter V. – Commodity prices

Another factor that can depend on currency price are commodity prices. What is important to note is that the effect of commodity prices on currencies depends on the use of certain commodity in each country. First of all, it is is needful to distinguish between importer and exporter of a particular commodity. For example, Australia is exporter of iron ore and thus fall in iron ore prices has negative impact on Australian dollar. On the other hand, China is importer of iron ore and decline in its prices has positive impact on the currency but also overall economy since costs of industrial production, in which iron ore is used, are being lowered.  
 


Another good example of this are crude oil prices and its effect on Canadian dollar. Canada is generally thought of as the currency to benefit most from rising oil prices because it exports so much oil. On the opposite side are the United States. Rising oil prices actually means that consumers will have to spend more on gas, and to make up difference they spend less on some other discretionary items, which can have negative impact on the overall economy in which consumer spending plays big role.  
 
Australian and Canadian dollar react most quickly on changes in commodity prices and are for that reason often referred as commodity currencies, mostly because Canada and Australia are great exporter of certain commodities. For others changes in commodity prices mostly depend on the demand side. Overall, we can conclude that if demand is up Aussie and Canadian dollar will be boosted, but it is also important to pay attention from where demand is coming and will it persist.   
 
With this chapter, we have finished basics on Fundamental factors that have the largest impact on currency prices. In the next section we will deal with most important Technical indicators.

Last modified on Saturday, 01 April 2017
More in this category: « Fundamental analysis – Chapter IV. – Geopolitical events Technical analysis – Chapter I. – Long vs. Short bodies »

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