Page 18 - Ultimate Guide to Currency Trading

Minor FX pairs can add a degree of stability to a trading portfolio because the minor
currencies in the FX pair have a tendency to move in a unidirectional path. As an example, the
Norwegian krone has had a long, slow, steady climb against the USD. As with all FX pairs, there can be
many reasons for this longer-term movement. In the case of NOK, the country of Norway has enjoyed
the benefit of a positive currency account, surplus budget, and other strong economic fundamentals.
In addition to this, Norway exports the crude oil that comes from its offshore oil rigs, and sells this oil
in the open market. These sales have been increasing in dollar terms, mainly due to the weakening
dollar and subsequent rise in crude oil prices.

Commodities such as gold, silver, and crude oil are priced and traded throughout
the world in U.S. dollar terms. As the relative value of the USD goes down, the price

Essential of an ounce of gold or a barrel of oil goes up the same percentage. In this way,
commodities such as these are in effect a currency to be traded the world over.

Table 2-1 : COMMODITY COUNTRIES AND THEIR MINOR CURRENCIES

Country FX Symbol Commodity Produced Export Partners
Canada CAD Gold, Copper, Oil, Grains USA,UK,Europe, Asia
Australia AUD Gold India, China, USA,UK, Europe
New Zealand NZD Wool, Grains, Cotton India, China, Japan
South Africa SAR Gold India, UK, Europe
Norway NOK Crude Oil Europe, UK, Asia, China

Many of the minor currency pairs are what are often referred to as commodity currencies.
Commodity currencies refer to the home currency of countries that mine, drill, grow, or raise raw
materials for export onto the world market.

Currency Crosses, Are They for You?

The third type of FX pairs is called the currency crosses. Currency crosses, or the cross pairs, is a term
that refers to pairs that are made up of either minor currencies or other infrequently traded groups. A
good example of these is AUD/GBP. When you trade this pair, profit can be made off the movement in
each, usually caused by actual or planned interest-rate movements of Great Britain and Australia.
Other factors that come into play are the different growth rates of the countries, and, of course,
actual or expected inflation rates of the countries. While it can be quite difficult to predict the
movement of this particular cross pair, the movement of others can be easier to predict, and
therefore easier to trade successfully.

Trades that involve FX pairs of the euro and euro proxies can be very successful. This success is
because the euro proxies such as SEK, NOK, and CHF and their home country's economies are
independently monitored by the relative country's central bank. This freedom and separate-ness from
their main trading partners can offer a wonderful opportunity to observe, read, and predict the