As An Example, Canada Has Traditionally Been An Exporter Of Oil, Whereas The United States Has Been An Importer

Category: Finance, Currency Trading.

I am going to assume that if you are reading this article then you already have a foundational knowledge of the foreign exchange( forex) market, so I am going to breeze through the basics and go right to the main topic of intermarket analysis.

As you can probably guess, the term" intermarket" in this context simply means looking beyond normal economic data in order to come to a conclusion about where the price of a certain currency pair is headed. If you are a financial market junkie like me, the topic of intermarket analysis is a fascinating one because it can applied to making money with forex trading( the main topic of this article) as easily as it can be applied to commodities. The opposite of intermarket analysis is plain fundamental analysis, usually focusing on major economic data such as employment, and interest rates, labor. The reason that the 10- year yield is important is because this value can be correlated to the value of a dollar index, or a basket of goods that can reveal the overall strength of the US dollar. A few of the most significant intermarket relationships have to do with gold, and the 10, oil- year bond yield in the United States. When it comes to gold and oil( which are arguably two of the most important commodities in the world today) , the prices of those commodities will most affect the currencies of the countries that produce these commodities. And Australia produces alot of gold, and there are many companies in Australia that manufacture gold products such as rare coins, so the Australian dollar( AUD) will be affected by changes in gold prices.

There are two main relationships when it comes to gold and oil: Canada is a large producer of oil, an so the Canadian dollar( CAD) will be affected by changes in oil prices. These are some of the most profound instances of intermarket relationships in the global economy, but keep in mind that these relationships are not exclusive to the currencies I just mentioned. Changes in the value of these important commodities like gold and oil will affect every currency, it just so happens that a larger part of the Australian economy has business interests in gold, so if gold gets more expensive then it becomes harder to do business. That is to say, changes in gold prices are not going to only affect the price of the Australian dollar and leave the value of every other currency unchanged. Though oil and gold each have a" flagship" currency which they affect the most, fluctuations in the price of each of these commodities will also affect every currency in a somewhat predictable manner. The way that oil affects currency prices is very interesting, since at this point in history( but hopefully not for much longer) nearly every major economy is dependent on oil for transportation and heating.

When it comes to gold, a basic rule of thumb is that the currency value of all nations will decrease when gold gets more expensive, since this can indicate that more people are buying precious metals because they may not have as much faith in the main governing bodies in the world. The way that changes in oil prices affect a country s currency depend on whether or not that country is an importer or an exporter of oil. So when oil becomes more expensive, this can be damaging to the United States economy and beneficial to an oil- exporter like Canada. As an example, Canada has traditionally been an exporter of oil, whereas the United States has been an importer. As a forex or currency trader, it is important to understand these relationships so that you do not derive your trading signals from only one source. It is also good to know how major commodities affect currency prices because you can also use this knowledge to make money in the global stock market, by investing in companies such as a Canadian oil producer or an Australian company the specializes in gold coins.

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