Some currencies are closely tied to the fortunes of the commodities their economies export. When the price of the commodity rises, the country earns more from selling it abroad, which tends to support the currency. This link is strongest for a handful of well-known commodity currencies.
The Main Commodity Currencies
| Currency | Key export links |
|---|---|
| AUD | Iron ore, coal, natural gas |
| CAD | Crude oil, natural gas |
| NZD | Dairy products, agriculture |
| NOK | North Sea oil and gas |
Terms of Trade Explained
Terms of trade compare the prices a country receives for its exports to the prices it pays for its imports. When export prices rise faster than import prices, terms of trade improve, meaning the country can buy more from the rest of the world for the same volume of exports — a genuine boost to national income that tends to support the currency.
Terms of Trade = (Export Price Index / Import Price Index) × 100Why the Link Isn't Perfect
Commodity prices are only one input. Interest rate differentials, overall risk sentiment, and domestic economic conditions all interact with the commodity link, sometimes reinforcing it and sometimes offsetting it. A currency can weaken even amid rising commodity prices if broader risk-off sentiment dominates.
CAD tracks crude oil more closely than a broad commodity index, because oil is a dominant share of Canada's exports. Match the currency to the commodity that's actually most relevant to that economy rather than assuming all commodity currencies move together.
Terms of Trade and the Current Account
Improving terms of trade tend to boost a country's current account balance, since export revenues rise relative to import costs. A stronger current account reduces a country's reliance on foreign capital inflows to fund its external position, which is generally supportive for the currency over the medium term.
Correlation Is Not Constant
- ▸Correlations between commodities and their linked currencies strengthen and weaken over different periods.
- ▸Global demand shocks — like a slowdown in a major commodity importer — can hit the currency indirectly through its trading partner's economy.
- ▸Domestic policy decisions, like a central bank hiking rates independently of commodity trends, can temporarily override the commodity link.
Practical Takeaways
- 1.Identify the specific commodity most relevant to each commodity currency you trade.
- 2.Track that commodity's price trend alongside the currency, not in isolation.
- 3.Remember interest rates and risk sentiment can override the commodity link temporarily.