Generally, forex commodities are separated and considered as 2 different instruments. The traders are separated either. Technically, these terms are totally different. However, Forex and commodities are similar in some fundamental identifications, such as leverage.
In the commodities market, there is a definition called the commodity currencies. For instance, the export of Japanese raw materials would lead to the influence of the exchange rate of their Yen. Beside from that, in the practice of China and India, it is common to trade commodities instead of currency, which is uncommon in the western countries.
Although gold is major trading focus, the Chinese firm usually store the commodities for a value and then trade these commodities as their payment. These practices are common in the period of rising cooper value a decade ago. As the large quantity of commodities trading on this basis worth a billion dollars, it does impact on the forex market.
Why this information valuable to trader?
Apart from commodity currencies and the price of exporting raw materials, the currency does major impact on the commodities price. As a matter of fact, those basis is the nature of economic influence, which translates from the price fluctuation. However, those impacts are not the same. So, how the commodities market influence forex?
The gold is traditionally considered as the measurement to an economic health as well as currencies values. Take an example, the price of gold rise will be a reflection of risk-off sentiment and safe-haven currencies.
Central banks use gold as reserve for purchasing and reducing their cash as long as the current value below a certain threshold. Especially, when people are less confident in their currency, the demand increases. For instance, in China and India, the positive economic performance would lead to the gold price increase.
Corn is unbelievably useful for different usage, such as feeding, penicillin producing. The corn price increase would impact on the price of other products, including inflation and slow-down economy. Which country are self-supply those base products would be not influenced. The benefits are great to those countries in exporting and less to those importing nations. Their currency will weaken as their surplus spending to serve the population and materials to make products.
Natural Gas and Oil
These components are important in transportation. The shipping is more expensive, international trade will be effect as the result of increased oil prices. These impacts translate into currency influences.
The developed countries pay a lot of money for investment in high technology which makes their currencies become higher in the value than developing countries’ currencies. Although the fluctuation of commodities price has no instant effect on the forex, these changes are the value information for long-term movement. As a forex trader, you should pick up these effects for a broader picture of the market and increase your capital. Don’t refuse any commodities affect as it the way some currencies behave in certain ways.