The movement of any currency is governed by many factors like demand and supply, country’s economic health, trade balance etc. One such significant determinant is the commodity price.
Oil and gold sectors influence the currencies in a big way. Knowledge of these sectors and their performance help the forex traders in understanding the movement of the currencies. Some currencies like USD, Australian dollars and Canadian dollars exhibit high correlation with these commodities. Whereas Swiss francs and Japanese yen are not much sensitive.
The oil prices are very dynamic. This is an important indicator of country’s economic health. Oil is traded throughout the world in dollars. OPEC countries enjoy when the prices of oil increase. Whereas the importing countries bear the consequences. When the dollar rises the crude oil prices tend to rise. The oil dependent economies like US, India have to shell out more money, hence weakening of the currency.
Different currencies are affected in a different way by the oil prices. This depends upon the fact whether the country is oil exporter or an importer.
Canada is an Oil exporter. Any fall in the demand leads to fall in the dollar rate. As the demand rises, the economy revives and hence the exchange rate. When the oil prices go down the importers like Japan tend to gain. Canada and Saudi America are major exporters. Canada is a regular exporter of Oil to US because of geographical proximity and political stability. The currency pair rate USD/CAD is inversely proportional to the oil prices.
The Japanese economy is affected in a different way by the oil prices. The reason is that Japan is one of the major importers of oil. The upward trend in oil rates has a severe impact on the economy of the country. The currency pair CAD/JPY moves up as the oil prices go down and moves upward as the prices decrease. Japan is highly dependent upon imports for energy requirements. The country is able to regulate the currency rate by other means like monitoring the interest rates.
Thus, currencies can be traded wisely if their correlation with commodities is understood.
Related posts:
Posted in 
Thank you for this post I know some local manufacturers which might looking for ways to increase their market for the goods they have