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Jun 7
Some More Foreign Exchange

The Canadian dollar (CAD) recently hit an all time high against the US dollar (USD). This is consistent with the rally in commodities that has been occurring over the last couple of years.  is a resource rich nation with a surplus of commodities.  The Canadian dollar fluctuates with the value of commodities.  This is also true of the Australian dollar (AUD) and to a lesser extent to the dollar (NZD).  Many traders use these currencies as liquid proxies for commodities.

If a trader thought commodities were going to rally, she might buy CAD and AUD and sell USD.  If she was right and commodities rallied, the CAD and the AUD would appreciate and would buy more USD when the trade was reversed.

This is one way portfolio managers use FX trades in so called commodity currencies.


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« Larry's 10 Rules For Financial Prosperity | Main | Some More Foreign Exchange - Carry Trades »

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