Global Forex Trading | Division of Global Futures & Forex, Ltd.
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industrialization of China, which only became
obvious to the untrained eye within the past few years, has had
an enormous impact on economies around the world. But to forex traders, what is more important is that this historical development
led to strong trends and unprecedented growth in the global currency
According to the most recent gures released by the BIS, the daily
turnover in the currency markets exploded to a staggering $3.2
trillion dollars a day in 2007, nearly double the daily turnover only three years ago.
With this growing market, the FX community has nally embraced the
potential of emerging currencies, with 20 percent of currency trades
estimated to include emerging currencies. Taking into account that
this is part of a growing trend of emerging currencies, GFT expanded
its forex trading to include more than 120 currency pairs.
What’s even more amazing is that the country that started it all,
China, doesn’t actually have a free-oating currency — yet.
The Need for Commodity Currencies
The multi-faceted growth of China could not exist without Australia’s
gold, coal, bauxite, copper, lead and zinc; New Zealand’s wool; and
Canada’s gold, other metals and natural gas. This propelled the CRB
Index, which serves as a widely recognized benchmark for the global
commodities markets, to new highs in late 2007.
This demand for commodities and the incredibly fast-pacedconstruction in China will likely continue unabated. This means
that the Australian, New Zealand and Canadian dollars will have nochoice but to march higher at the tune of China’s music.
Traders often group currencies in simple ways, such as geographically,
by level of economic strength, or by what their country exports. If you follow the rst route in the order of the global day, you will get
the Asian block, the European block and the American block. Thiscategorization will likely not yield good results. The correlations within the Asian block are low, with the yen often following different patterns
and trends than Singapore or Taiwan.
All Commodity Currencies Were Not CreatedEqually
Commodity currencies include those from Australia, Canada and
New Zealand. But these countries are different as well; not only do they produce and export diverse commodities, but they also havevastly different geographic locations, asymmetrical economies and
dissimilar interest rates. These commodities may be strong and may
remain strong, but they will likely advance at different paces.
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The daily turnover exploded to a staggering $3.2 trillion dollars a day by 2007.
Geographically speaking, Australia and New Zealand are
closer to China than to the United States, which makes it
naturally easy to export commodities. While the entire world
wants to own a piece of Canada, its proximity to the United
States roughly translates into 87 percent of Canada’s exportsgoing to the United States, and approximately more than half
of these were metals, natural gasses and others.
What does this mean? If the U.S. economy slows down to
recessionary levels in the wake of the sub prime debacle, its
consumption will decrease, which will also decrease Canadian
exports. This would hurt the Canadian dollar, though this isall relative, given that the loonie was hovering at around a31-year high against the greenback.
None of these three commodity-exporting nations have
large populations; Australia has about 20.4 million people,Canada has around 33.4 million and New Zealand only 4.1
million people. It is easier to have strong economies with
fewer people, but this doesn’t guarantee success.