Types of currencies on : shelter currencies and commodity currencies
In normal economic conditions, rational investors choose assets that bring high returns, but in the era of instability, the determining factor in choosing trading instruments is their reliability, not profitability. That is why the currency market is characterized by the following types of currencies: shelter currencies and high-yielding currencies. Let's try to understand what factors influence the dynamics of these types of currencies and how to predict them.
A safe haven currency for investment security
A safe haven currency on or, in other words, protective currency is a currency typeThe currencies of countries characterized by political and economic stability, low inflation and confidence in the central bank, and often a balance of payments surplus, are considered safe currencies. Safe currencies are those of countries characterized by political and economic stability, low inflation and confidence in the central bank, and often balance of payments surpluses. It should be noted that over time the function of protection may shift from one currency to another. Currently, the safe havens are the U.S. dollar, the Japanese yen and the Swiss franc.
US dollar (USD) has been the global reserve and defense currency since the Bretton Woods Conference in 1944. Over the last decade, more than 60% of the total foreign exchange reserves of the world's countries were in US dollars. In times of economic and political turmoil, large and small investors convert their savings into U.S. currency, which leads to appreciation. Some simply hold dollars, while others "park" in the most reliable financial instrument in the world - U.S. Treasury bonds. In addition, the demand for the dollar grows on good news about the United States economy - especially the steady economic growth and the recovery of the labor market play an important role.
Japanese yen (JPY) - another currency that attracts investors during periods of reduced risk appetite. Paradoxically, the yen strengthens even on negative news from Japan itself. For example, after the radiation accident at the Fukushima nuclear power plant in March 2011, the USD/JPY pair fell by more than 600 points during the week. AUD/JPY, NZD/JPY, CAD/JPY are especially attractive for traders. Negative news on commodity economies leads to an instant strengthening of the yen's positions. We will talk about the characteristic features of these currencies below.
Another safe haven currency, whose name has long since become a household name, is. Swiss franc (CHF). A small but prosperous economy, an attractive banking sector and a longstanding politico-military neutrality have made the Swiss franc an oasis of calm in the ocean of the global economy. However, the franc's status as a saving asset was noticeably undermined by the Swiss National Bank's decision to fix its exchange rate against the euro on September 6, 2011.
Commodity currencies - Carry Trade strategy tool
Commodity or commodity currencies are the currency of countries whose economies are heavily dependent on the extraction and export of various raw materials: oil, gas, coal, precious metals, etc. Commodity currencies include, in particular, the Canadian, New Zealand and Australian dollars, the Russian ruble and the Norwegian krone. However, given the fact that the currencies of many resource-rich countries are government regulated or have little presence in international markets, traders in this area focus on three countries with liquid and free-floating currency - Canada, Australia and New Zealand.
Demand for commodity currencies increases during periods of relative stability in the global economy and politics, and decreases during periods of economic turmoil and uncertainty. When investor sentiment is positive, the global economy grows and demand for commodities increases, which in turn increases the income of commodity-exporting countries. As a result, interest rates rise in these countries and their economies become attractive destinations for investing in carry trade - A strategy in which investors borrow funds in low-yielding currencies and invest them in high-yielding currencies. Because of the higher returns, trading in these currencies tends to be higher risk. Carry trade can be a very strong driver of growth in commodity currencies. However, when financial conditions deteriorate, the carry trade can quickly turn in the other direction, threatening a sharp capital outflow from exporting countries and a decline in commodity currencies. Thus, traders working with commodity currencies should keep a close eye on all news related to global commodity markets.
A prime example of a commodity currency is the Canadian dollar (CAD). Oil and gas are the largest Canadian exports, while the country is the largest foreign supplier of energy resources to the United States. Thus, the exchange rate of the Canadian dollar directly depends on the world prices for "black gold". As the price rises, the Canadian dollar strengthens, with oil quotations being the leading indicator. The commodity nature of the Canadian economy has made CAD a popular currency among traders whose strategy is based on the dynamics of energy markets.
Australian dollar (AUD) - another "classic" commodity currency. Australia actively exports natural resources, so the exchange rate of its national currency is highly dependent on the prices of raw materials (oil, gold, diamonds, iron ore, agricultural products, nickel and coal). High commodity prices support the Australian dollar against the USD, and low commodity prices cause the AUD to decline. In addition, the state of the economy of China, which is the largest importer of Australian raw materials, has a great influence on the dynamics of the Aussie. Positive economic statistics from China is favorable for the AUD. It is the growing Chinese demand that contributed to the strengthening of the Aussie over the last decade. Negative data from China, on the contrary, has a negative impact on AUD/USD.
The third most popular commodity currency is. New Zealand dollar (NZD). Несмотря на то, что Новая Зеландия не обладает такими нефтяными запасами, как Канада, и таким количеством драгоценных металлов, как Австралия, она является заметным экспортером товаров народного потребления. Ключевые статьи экспорта страны — молоко, мясо, древесина и шерсть. Мощное влияние на новозеландца оказывают цены на молочную продукцию и информация о молочных аукционах, проводимых такими крупными компаниями, как Fonterra. Кроме того, новозеландская экономика имеет тесные связи с соседней австралийской, поэтому корреляция «киви» и «новозеландца» в хорошие времена достигает 100%.
Thus, knowing which types of currencies exist on the currency market, will allow the novice trader to more widely realize the principles of fundamental analysis and correctly build his trading tactics depending on the chosen asset: the currency of refuge or commodity currencies.