A commodity currency is a form of money that enjoys a close relationship with the value of a particular commodity. Investors look at commodity currencies as national currencies that are closely tied to price changes for a commodity that happens to be a majority export of the nation in question. Commodity currency trading offers the investor the chance to make a play on specific commodities indirectly through the holding of a foreign currency.
Any kind of commodity can be the basis for a commodity currency. For example, a nation that exports a good deal of oil can lead investors to label its currency a “commodity currency,” relying on the fundamental price changes of oil. The Canadian dollar is one example that traders sometimes point to as a commodity currency based on oil. The types of commodities related to commodity currencies can vary from energy sources like oil and natural gas, to minerals like zinc, precious metals like gold and silver, or even food related commodities such as livestock. Each one will have a unique attraction for a trader who wants to gain from changes in how commodities get valued globally.
The evaluation of commodity currencies reflect how today’s modern investors assign different kinds of abstract values to specific national monetary forms. For example, traders also refer to “hard” and “soft” currency, where hard currency is seen as a stable investment in the global economy as a whole, and soft currency is something experts often recommend avoiding. In a similar way, making a national currency a “commodity currency” reflects a fixed thinking about the value of that particular money, in relation to the nation’s exports.
Investors have started trading commodity currencies in a major way. With the emergence of 24 hour Forex or foreign exchange markets, there is a greater opportunity for the individual investor to put money into commodity currencies with specific investment goals related, not only to the growth of a national economy, but to changes in the value of commodities themselves. Financial companies have started to offer complex commodity currency products, such as commodity currency exchange traded funds or ETFs, which make it easy for a trader to “get into” diverse commodity securities including different types of national currency.