Forex market is the largest market in the world. There are many traders from all over the world and it has a global impact on the global economy. Most of the time, we have heard how oil prices affect the price level of the currency pairs in Forex. It affects the currency pairs because all the pairs are interrelated and when the price of a currency pair falls, another currency pair is also affected by the market. There are many countries which are the major oil producers in the world who are having a big part in this trading market. When the price of oil is changed, their economy faces a big change which is shown in the price level of Forex. For instance, if the price of oil rises up then the USDCAD pair generally goes down as Canadian dollar becomes much stronger. Since Canada is one of the leading oil producers in the world the variation of oil price has a tremendous impact on the Canadian economy. In our article, we are going to talk about the impacts of oil prices on the currency pairs in Forex.
Before we go into our discussion, you need to have an idea what a Petro-currency is. When the rising and falling of oil prices have a significant impact on a currency, that currency is called “Petro-currency”. Not all nations produce oil in the world and it is the currency of the oil producing nation, like Russia and Canada, which is one of the two largest oil producers in the world. So if you expect that the rate of Singapore dollar will drastically change with the drastic rise of oil price then you are completely wrong. If the country’s economy depends on the production of then the change in oil price would have a dramatic impact on the Singaporean dollar.
Not all currency pairs experience the same impact of the oil price change. In our article, we are going to talk about some of the major currency which has the biggest impact when the price of the oil changes.
Loonie is the Canadian currency. Canada is the world fifth largest oil producers and it has a very great impact on their current price when the world oil price changes. Oil contributes to 14% of their economy and a small price change in oil can have a big impact on the Canadian Loonie in the Forex market. So if you want to be good at trading then you need to know the fundamental news releases in the oil industry while trading the USDCAD pair. In other words, you need to do the commodity market analysis at times to find the best possible trade setup in the exchange traded funds industry.
Russia is one of the largest oil producers in the world. Russian ruble is an important currency in the market of Forex. The market is interconnected and any change in this large nation’s Petro-currency has an impact on the rest of the currency pair’s price level in Forex. Russia’s economy is largely depended on the oil production. The World Bank has published a report where it states that, for the decline of only 1 dollar in oil price, Russia loses 2 billion dollars of revenue. Since the ruble is not widely traded by the professional traders its betters to stay away from the Russian ruble in the forex market.
Summary: By now you know that the impact of the change in oil price directly affects the price movement of certain currency pairs. So if you want to trade all the major pairs then you need to know which pair is most affected by the oil price fluctuation. If you don’t do so then at times you will find that all your profits are being washed away due to high impact news releases in the oil industry.