In the forex market, there are three currency pairs that are commonly referred to as the “commodity currencies”, which are the USD/CAD, AUD/USD and NZD/USD. The reason for this nickname is that the economies of Canada, Australia and New Zealand is based largely on their commodity markets, such as oil, timber, and agriculture) and during times of economic duress it is common for traders to move their money out of the dollar to these currencies to try to compensate for potential losses. Due to the nature of these three currency pairs, as well as their average market trading volume, it may present a unique opportunity for fundamental traders.
Due to the large amount of liquidity for a currency pair like the EUR/USD (which is the most traded currency pair in the world), a large buy or sell order in the billions which is usually absorbed easily in the market without a large effect on the current exchange rate levels. These three commodity currency pairs, however, have much lower daily trading volume of the Euro against the dollar, and so a similar order of an equally large size could have a much greater effect on the rate of change. Now while it is true that all currency pairs are going to have traders that made their trades based on technical signals, a disproportionate amount of commercial activity in the commodity currencies is event-driven, which means that it is driven by a fundamental announcement of some kind.
Canada, Australia and New Zealand, all have their own financial institutions and to central banks, and each of them also has a handful of economic policy of the agencies that the release of the quarterly reports or monthly. If there is an announcement by any of these agencies (such as a change in current interest rates), or an economic report that comes out with a high degree of * the variance of the expectations, this may require a large and quick amount of buying or selling pressure in the currency. But when such economic reports come out in the united States (since each of these currency pairs has a USD component) this can prompt buying and selling pressure in all three of these pairs.
Since the share price in these currency pairs is of a fundamental event-driven nature, this can mean two important things for traders who are looking to take advantage of these movements: rapid changes in bullish or bearish sentiment will create rapid price movements, which can present a good day trading opportunity, and also these rapid changes can also create price differences that can temporarily decrease liquidity, increase spreads (depending on your software platform), and create a potential price slippage situation. The lessons to be learned here is that these three “commodity currency” pairs have a larger-than-normal reaction, the two fundamental principles of ads, and that most of the traders are making their buy and sell decisions in an event-driven basis which means swift price movements and a good day trade opportunities.