- Why Gold-Usd Correlation is of Much Significance to Currency Trader?
- Correlations Between Gold, Oil, Shares, And Currencies Pairs
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Notice the In reality, there is no proper explanation to this. Although the fact that gold and yen both share the status as a safe haven does in a way validates this correlation. But it is merely scratching the surface. Correlations in the markets come and go. A more recent example that traders can recollect was the short term correlation between oil prices and stocks in the first half of the year, which soon faded.
This brings an important point to mention, which is that with any correlation you cannot take it for granted.
Why Gold-Usd Correlation is of Much Significance to Currency Trader?
Therefore traders need to constantly, and at regular intervals check on the correlation between gold and yen. However, this fluctuates and therefore traders should always keep an eye out on any significant changes. Another factor that can change the correlation is the Bank of Japan. On a very simple basis, traders can apply their trading strategy to both the instruments and trade when the signals are triggered. Another approach is to compare the candlestick price action on both the charts.
As a reminder, traders should, however, remain cautious on the correlations which can change at an instant.
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Paying attention to the fundamentals always helps, and look out for specific comments from central banks Fed, BoJ that could bring about some short-term noise in the markets. John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.
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For example, the exchange rates of the Canadian dollar, the Russian ruble, and the Norwegian krone are highly impacted by oil prices. The reason behind this is that Norway, Russia, and Canada are one of the largest producers and exporters of oil in the world. Consequently, when the price of this commodity rises, the oil companies and governments in those countries tend to benefit from higher revenues.
On the other hand, when oil prices decline, those companies and governments suffer the loss of revenue, hence the likely depreciation of these currencies. Here it is also worth noting that oil is not the only commodity that has an influence on the Forex market. For example, the Australian dollar is highly correlated with gold and silver prices while the New Zealand dollar is tied to dairy prices. Consequently, by observing the commodity prices, traders might get some trading ideas. For example, let us suppose that the dairy prices are falling, while the silver makes some notable gains in the market.
Now, as one of the largest exporters of dairy products, the falling dairy prices can have a negative impact on the producers of this commodity in New Zealand. Lower dairy prices can translate into the loss of revenue of those firms. The fact of the matter is that those companies still have to pay salaries to their employees while covering the cost of utilities and making other necessary expenditures. As a result, the New Zealand government will receive less income from taxes. It goes without saying that this will have a negative effect on the value of the New Zealand dollar.
On the other hand, the appreciation of silver prices can be beneficial for the Australian dollar. This could lead to Australian mining companies earning higher revenues. As a result, the profitability of those firms might improve considerably, resulting in higher tax revenues for the Australian government.
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In this way, traders can earn some decent payouts from the likely appreciation of the Australian dollar. It is true that the positive correlation between currency pairs and commodities can last for years or even decades. However, in some cases, those relationships can be disrupted by events or other factors. For example, as mentioned above the Australian dollar is highly correlated with gold and silver prices.
The main reason for this was the fact that at that time the Reserve Bank of Australia has started cutting rates, eventually reducing them to 0. It goes without saying that this made the Australian dollar less attractive for the market participants, because it reduced the rate of return for carrying traders, investors, and savers, investing in the Australian dollar.
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However, once the series of rate cuts ended, the AUD stopped depreciating and even regained some of the recently lost ground. So the old relationship between the Australian dollar and gold price was restored.
Correlations Between Gold, Oil, Shares, And Currencies Pairs
So as we can see, when trading highly correlated currencies, traders should take a look at several fundamental and technical indicators before making any trading decisions. This can certainly help the market participants to improve the accuracy of their trades, when trading positively or negatively correlated currency pairs and commodities. Peter comes from a background in corporate finance which began in when he completed the Corporate Finance Program at the University of Economics in Bratislava.
His experience in finance and trading continues not only as a market analyst at Axiory Intelligence but also through his studies to obtain a degree in Capital Markets. According to research in South Africa, RoboForex Group has been operating since through two worlds presented entities namely RoboForex, with […]. View Share.
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All data is delayed by at least 15 minutes. Read Review. Download our free e-book. Download Free ebook PDF. Skip to content Search. What is Ripple? What is Litecoin? Best Brokers. Forex No Deposit Bonus. Open a Bitcoin Wallet. Broker of the Month. Avoid Trading Positively Correlated Currency Pairs One of the first things experienced traders mention about positively correlated currencies is that traders should avoid opening the same positions with those.