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Many traders are often unaware of the different correlations between global markets and the currency market, trading blind, while trying to understand the reasons behind the strength or weakness of certain currencies. Recent declines in the Australian Dollar, New-Zealand Dollar and Canadian Dollar have caught many traders’ eyes, wondering if these declines will continue. Only recently has the Canadian Dollar broken out of its trading range, devaluating against a strengthening U.S Dollar. Recent bearish trends in those currencies have given traders all the reason to believe that the same patterns could continue, allowing them to profit more from shorting those particular currencies. While the Dollar seems to be rampaging forward against its counterparts, trader shouldn’t be asking their selves if current trends will continue, but either what is making Dollar counterparts so unattractive.

These three dominant economies support their trade balances by exporting their natural resources. Importing countries buying their goods are forced to purchase these commodities through the exporting country’s currency, therefore increasing the demand of that currency and increasing its value.

Canada- to date, Canada holds the second largest oil reserve after Saudi Arabia (reserves of over 175 billion barrels) which it accumulates from mass oil expeditions over the northern part of the country. It enjoys the largest trade relationship with the U.S than with any other country in the world. Over time Canada has become the single largest supplier of energy to the United States providing 17% of the U.S oils imports and 18% of the natural gas demand.

Australia- Similar to Canada, Australia also prospers from natural resources. Australia’s lands are extremely rich with minerals and fossil fuels producing among other commodities such as gold and coal, which are two of the main in-demand materials.

 New Zealand-Normally when talking about New Zealand, amazing scenery and wildlife comes to mind, but most people forget the fact that this amazing country’s trade balance prospers from agricultural exports, production of coal, oil and natural gas.

 Due to the recent turmoil in global markets and a slowdown in consumer consumption, commodity currencies have been declining as commodity prices continue falling on a daily basis.

Taking a glance at the CRB index, one can see the declining demand caused by a global slowdown and a rising Dollar. In addition, looking at Gold and Crude oil, one can see the drop in prices, which is having an affect on commodity currencies.

Normally after large drops like those recently experienced, one would expect some leave way, as traders tend to take profits on gains, which often leads to a bounce in price. Many traders are questioning whether these currencies will regain strength any time soon, allowing them to jump on for the rest of the ride, especially as currencies like the AUD/USD have been declining for 14 consecutive days.

From a fundamental point of view, commodity economies do not look very promising. With the three economies suffering from high inflation, slow economic growth and increasing unemployment, expectations on those currency’s interest rates are shifting to rate cuts. Canada has already started with its monetary easing. In addition, after reducing interest rates from 5.25% to 2%, comments from the Fed are hinting towards possible rate hikes, in the near future. One must note that expectations of interest rate hikes in the U.S will; increase the value of the Dollar, lower the demand of commodities due to the higher value of the dollar and lower the value of commodity currencies. A combination of the U.S having the upper hand in interest rate expectations and a global slowdown affecting the demand for commodities, are not showing a promising future for the Australian Dollar, New-Zealand Dollar and Canadian Dollar.