Written by Jimmy Yung

The three currency pairs that have the highest correlations with commodities are the Canadian dollar (CAD), Australian dollar(AUD), and the New Zealand dollar(NZD). Highly correlated to rising and falling gold prices are the AUD/USD and NZD/USD currency pairs, the single biggest beneficiary of rising oil prices is the USD/CAD.

When making trading decisions in the commodity pairs, it might be a good idea to take a look at the correlated commodities because it can help to predict future up or down movements. For example, If you think gold will keep rising, it might be a good strategy to buy the Australian dollar since it’s 80% positive correlation to gold.

Commodity Pairs Analysis

AUD/USD ( Australian dollar / U.S. dollar )

Because Australia is the world’s third largest exporter of gold, the Australian dollar has an 80% positive correlation with this metal. If you believe the price of gold will continue to increase, you could favor a commodity-based economy like Australia because if gold rises, the Australian Dollar is very likely to follow it’s lead.

1) If you think Gold will keep rising, it might be a good strategy to buy the Australian dollar because it’s 80% positive correlation to Gold.

2) Since the AUD/USD pair tends to be highly correlated to gold, it might be a good idea to compare both AUD/USD and gold charts in order to predict future moves, if for example gold breaks above an important resistance level and AUD/USD didn’t break resistance level yet, the AUD/USD is very likely to break above also. This illustrates how gold tends to lead the move ahead of the Australian dollar.

Below charts illustrate the high correlation between the Australian dollar and Gold.

NZD/USD (New Zealand dollar / U.S. dollar)

The health of New Zealand ‘s economy is closely tied to the health of the Australian economy. This explains why the New Zealand dollar and the Australian dollar have had a 92% positive correlation over the past four years (2003-2006). The New Zealand dollar has an even stronger correlation with gold than the AUD/USD does — the correlation has been approximately 88% over the past three years. If you believe the price of gold will continue to increase, you could favor a commodity-based economy like New Zealand because if gold rises, the New Zealand dollar is overly likely to follow it’s lead.

1) If you think gold will keep rising, it might be a good strategy to buy the New Zealand dollar because it’s 85% positive correlation to gold over the past years.

2) Since the NZD/USD pair tends to be highly correlated to gold (together with the AUD/USD), it might be a good idea to compare both NZD/USD and gold charts in order to predict future moves in the New Zealand dollar, if for example gold breaks above an important resistance level and NZD/USD didn’t break resistance level yet, the NZD/USD is very likely to break above also. This illustrates how gold tends to lead the move ahead of NZD/USD.

NZD/USD and the AUD/USD have a clearly positive relationship because of Gold(see charts below)

USD/CAD (U.S. dollar / Canadian dollar)

The USD/CAD is the single biggest beneficiary of rising oil prices. Canada which is already the biggest exporter of oil to the US, will experience a boost to its economy when oil price continue to increase. Therefore, if oil rises the Canadian dollar is likely to follow. Over the past years. the correlation between the Canadian dollar and oil prices has been approximately 81%.

1) If you believe the price of oil will keep rising, it might be a good strategy to buy the Canadian dollar because it’s 81% positive correlation to oil over the past years.

2) Since the USD/CAD pair tends to be highly correlated to oil, it might be a good idea to compare both Canadian dollar and oil charts in order to predict future moves, if for example oil breaks above an important resistance level and USD/CAD didn’t break resistance level yet, the USD/CAD is very likely to break above also. This illustrates how oil tends to lead the move ahead of USD/CAD.

The charts below illustrate the high correlation between the Canadian dollar and oil.