How are foreign exchange rates affected by commodity price fluctuations?

In the foreign exchange (forex) market, currency valuations move up and down as a result of many factors, including interest rates, supply and demand, economic growth and political conditions. Generally speaking, the more dependent a country is on a primary domestic industry, the stronger the correlation between the national currency and the industry's commodity prices.

In general, there is no uniform rule for determining what commodities a given currency will be correlated with and how strong that correlation will be. However, some currencies provide good examples of commodity-forex relationships.

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Commodity currency

A commodity currency is a name given to currencies of countries which depend heavily on the export of certain raw materials for income. These countries are typically developing countries, e.g. countries like Burundi, Tanzania, and Papua New Guinea; but also include developed countries like Canada and Australia.

For more than a year now, commodity prices have been under pressure from the strong U.S. dollar and slowing global demand. This has made a huge dent in the balance sheet of many net exporters of resources, in turn weakening their currencies.

  1. Australian Dollar
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All about the Euro Currency

  • The European Currency Unit (₠ or ECU, French pronunciation: was a basket of the currencies of the European Community member states, used as the unit of account of the European Community before being replaced by the euro on 1 January 1999, at parity.
  • The euro (sign: €; code: EUR) is the official currency of the eurozone, which consists of 19 of the 28 member states of the European Union: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.
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What is Over-the-Counter?

Over-the-Counter Definition. Over-the-Counter, or “OTC”, is used to describe any transaction for a security, financial instrument, currency, or any other asset that is not handled over an organized exchange. Typically, exchanges involve trading floors or electronic trading platforms that post ongoing transaction volumes along with pricing information and monitor the ongoing trade action. OTC stocks tend to be traded on the OTC Bulletin Board or Pink Sheets, a subset of the NASDAQ. These issues entail more risk due to more lenient reporting requirements and less supervisory oversight by the SEC. The computer system that handles these transactions may also be referred to as the Over-the-Counter system. The foreign exchange, or forex, market is

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What is a Lagging Indicator?

Lagging indicators generally change after the economy as a whole does, and therefore, have little predictive value. Typically the lag is a few quarters of a year. The unemployment rate is a lagging indicator. Employment tends to increase two or three quarters after a recovery from a period of negative growth in the general economy. In technical analysis, Bollinger bands and moving averages are some of the various lagging indicators in frequent use today. In a performance measuring system, profit earned by a business is a lagging indicator as it reflects historical performance. Leading indicators tend to react before a trend begins, and coincident indicators change during a trend. The Index of Lagging Indicators is published monthly by The

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