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CAD, AUD and NZD Forecast: Commodity Currencies Against USD

Commentaries & Views

There were three brothers – older, middle and younger... Actually, the CAD, the AUD, and the NZD – the members of this trio – definitely have family ties as you probably know. However, they are united not only by the word "dollar" in the titles, all of them are known as commodity currencies. Let's explore what lies ahead for the Canadian dollar, Australian dollar, and New Zealand dollar.

To begin, we can examine the currency pairs of interest, namely USD/CAD, USD/AUD, and USD/NZD, through a chart depicting their movements since the start of 2023. It's worth noting that many of these fluctuations can be forecasted using specialized tools for traders and investors. Monitoring the economic calendar, which highlights major and minor global economic events, is one such tool.

Observing the chart, we can identify general patterns in the movement of these currency pairs. However, there are some differences in results – for example, a nearly 5% gap between NZD and CAD. Anyway, we need more comparisons. Therefore, let's include the US dollar index, which indicates the USD's performance against other major currencies, on the chart.

Based on this information, we can see that the New Zealand dollar and the Australian dollar have outperformed the US dollar and most major currencies, while the Canadian dollar is slightly falling behind (however, the gap is not too big).

But why are CAD, AUD and NZD called commodity currencies, and how does this designation impact their exchange rates? Well, these three currencies are influenced by export volumes. For example, Canada's economy is closely linked to the export of various commodities to the US due to their shared border. Significant traded directions for Australia are China, India, and Japan, while New Zealand primarily relies on trade with Australia and China.

Commodity prices also play a crucial role. Rising prices have a positive effect on commodity currencies, while falling prices have a negative impact. There is a direct correlation. But you should first investigate which commodities are essential for every country's export. For example, Canada relies on oil and oil products, Australia on oil, other energy sources, and agricultural products, and New Zealand on dairy and meat products.

Additionally, the monetary policies and key interest rates set by local central banks take part in forming currency rates. If the Federal Reserve consistently lowers interest rates while the Reserve Bank of Australia raises them, the AUD will obviously increase to the USD. This principle applies universally.

But what about now? It seems neither the Fed nor the Canadian, Australian and New Zealand central banks are not going to push for significant interest rate changes. At the same time, we don't see these regions being characterized by extraordinary growth. Economic development and the volume of supply for commodities remain subdued, even with China not demonstrating substantial growth after lifting Covid-19 restrictions.

Considering these factors, experts believe that significant changes in the USD/CAD, USD/AUD, and USD/NZD pairs are unlikely. Of course, some of these currencies may show growth thanks to a possible weakening of the US economy or commodity price hikes. But this outcome hinges on various events occurring. So, closely monitoring news related to these commodity currencies is essential for successful and profitable trades.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.