Currency-Commodity Correlations

Certain currencies and commodities correlate due to the economic structure and trade dependencies of their associated countries or regions. 

For example, the Canadian Dollar (CAD) is positively correlated with crude oil because Canada is a major oil exporter, and rising oil prices increase export revenues, strengthening the CAD. 

Similarly, the Japanese Yen (JPY) often inversely correlates with crude oil, as Japan relies heavily on oil imports, making higher oil prices a burden when the yen weakens.

Another case is the Australian Dollar (AUD) and iron ore, which show a direct correlation because Australia is a leading global exporter of iron ore, so increased global demand boosts both the commodity price and the AUD. 

Lastly, gold and the US Dollar (USD) share an inverse correlation because gold is seen as a safe-haven asset, with demand rising when the USD weakens or during periods of economic uncertainty.

It can be important to know this information because in your portfolio you can have an advantage knowing that certain assets will move differently. This helps to better balance your positions.

We’ll explore these relationships in more detail in this article.

Key Takeaways – Currency-Commodity Correlations

• USD – Commodities priced in USD (e.g., oil, gold) typically show inverse correlations with the dollar due to affordability shifts.
• EUR, JPY, GBP – These currencies often share inverse correlations with commodities, as their weaker value raises import costs for oil, gas, and agricultural products.
• AUD and CAD – As major commodity-exporting countries, these currencies display direct correlations with resource prices like oil, gold, and industrial metals.
• CHF – Safe-haven status aligns it directly with precious metals but has minimal correlations with other commodities.
• CNY – China’s role as the largest consumer and importer of many commodities ties the yuan’s value directly to metals and inversely to energy and agricultural imports.

First, let’s look at the top commodities and currencies globally.

Top Commodities

The global commodities market is vast, encompassing a wide array of goods traded daily. 

Based on trading volumes and market demand, here are 15 of the most popular commodities:

1. Crude Oil (Brent and WTI) – Often referred to as “black gold,” crude oil is a primary energy source, essential for transportation fuels, heating oils, and various industrial products.
2. Natural Gas – A vital energy commodity used for electricity generation, heating, and as an industrial feedstock.
3. Gold – Valued both as a precious metal for jewelry and as a financial asset, gold serves as a long-run hedge against inflation and currency devaluations.
4. Silver – Used in jewelry, electronics, and as an investment vehicle, silver has diverse industrial applications.
5. Copper – With its widespread use in construction and electronics, it’s a key indicator of economic health.
6. Coffee – One of the most consumed beverages globally, coffee is a significant agricultural commodity.
7. Sugar – Used extensively in food production, sugar is a staple commodity in global trade.
8. Wheat – A fundamental food grain, wheat is essential for producing bread and other staple foods.
9. Corn – Used for food, animal feed, and biofuel production, corn is a versatile agricultural commodity.
10. Soybeans – Important for oil production and as a protein source in animal feed.
11. Cotton – A key raw material for the textile industry, cotton is used in clothing and household products.
12. Iron Ore – The primary raw material for steel production, iron ore is fundamental to construction and manufacturing.
13. Aluminum – Lightweight and corrosion-resistant, aluminum is used in transportation, packaging, and construction.
14. Platinum – A precious metal with applications in jewelry and as a catalyst in industrial processes.
15. Palladium – Used primarily in automotive catalytic converters and electronics, palladium is a valuable industrial metal.

Top Currencies

Regarding global currencies, the major ones, often referred to as “The Majors,” dominate the foreign exchange market. These include:

• US Dollar (USD) – The world’s primary reserve currency, involved in approximately 88.5% of daily foreign exchange transactions.
• Euro (EUR) – The official currency of the Eurozone, participating in about 31.3% of daily forex transactions.
• Japanese Yen (JPY) – Japan’s official currency, part of around 21.6% of daily forex transactions.
• British Pound Sterling (GBP) – The UK’s currency (about 12.8% of daily forex transactions).
• Australian Dollar (AUD) – Australia’s currency (approximately 6.9% of daily forex transactions).
• Canadian Dollar (CAD) – Canada’s currency (about 5.0% of daily forex transactions).
• Swiss Franc (CHF) – Switzerland’s currency (around 5.0% of daily forex transactions).
• Chinese Yuan (CNY) – Not a major, but increasingly influential. Also known as the Renminbi (RMB), the yuan is the official currency of China, used in international trade and finance as China expands its global economic influence.

These currencies are the most traded globally, reflecting their countries’ roles in international trade and finance.

Let’s look at some correlations.

Note that correlations are dynamic and over the short run, they can differ.

For example, with the chart below, various types of commodities have their correlations measured relative to the S&P 500 and US dollar (over a specific 12-month period).

Some of what’s displayed on this chart will conflict with some of what we have below, given correlations’ fleeting nature.

Also, correlations change over time for fundamental reasons.

For example, if a country imports oil, then higher oil is generally a knock on its currency, all else equal.

However, if regulation or production changes and it starts producing more of its own oil to become less dependent, then higher oil will become less of a factor.

If it becomes a net exporter, it could help it.

Commodities and the US Dollar (USD)

• Crude Oil (Brent and WTI): Inverse correlation – Oil is traditionally priced in USD globally. So a stronger dollar makes oil more expensive for other currencies, reducing demand. The petrodollar refers to the global practice of pricing and trading oil in US dollars, which reinforces the USD’s dominance as the world’s reserve currency and creates economic ties between oil-exporting countries and the US financial system.
• Natural Gas: Inverse correlation – Like oil, natural gas is priced in USD, leading to similar effects on demand and pricing.
• Gold: Inverse correlation – Gold is a safe-haven asset and is often sought when the USD weakens or inflation is high. Gold acts as a type of inverse currency.
• Silver: Inverse correlation – Silver, like gold, reacts inversely to USD strength due to its dual role as a precious and industrial metal.
• Copper: Weak inverse correlation – Industrial demand drives copper prices, but a strong USD can marginally suppress global purchasing power.
• Wheat: Inverse correlation – Priced in USD, wheat follows the typical pattern where a stronger dollar reduces affordability for global buyers. The US is a major wheat exporter, though this share has been declining and is only 6-7% of wheat production globally.
• Corn: Inverse correlation – Similar to wheat, corn is impacted by the USD’s strength because it affects global trade competitiveness.
• Soybeans: Inverse correlation – Agricultural commodities like soybeans show reduced demand globally when the USD is strong.
• Iron Ore: Weak correlation – Industrial demand and infrastructure projects have a stronger influence on iron ore than currency fluctuations or effect on the currency.
• Coffee: Inverse correlation – Coffee prices, often tied to emerging market economies, are sensitive to USD fluctuations.
• Sugar: Inverse correlation – Sugar, primarily produced in developing economies, becomes pricier with a stronger USD.
• Cotton: Inverse correlation – Priced in USD, global trade competitiveness impacts cotton‘s cost and demand.
• Platinum: Inverse correlation – Platinum’s pricing mirrors precious metals trends, showing sensitivity to USD movements.
• Palladium: Weak correlation – Palladium‘s pricing is more dependent on automotive and industrial demand than currency.
• Aluminum: Weak correlation – Industrial demand and supply chain dynamics for aluminum outweigh the direct impact of USD fluctuations.

Commodities and the Euro (EUR)

• Crude Oil: Inverse correlation – A weaker EUR against the USD increases oil costs for Eurozone countries, suppressing demand.
• Natural Gas: Direct correlation – Europe’s heavy reliance on natural gas imports creates a direct link between EUR strength and gas affordability.
• Gold and Silver: Inverse correlation – As with the USD, gold and silver hedge against Euro weakness or inflationary concerns.
• Industrial Metals (Copper, Iron Ore, Aluminum): Weak correlation – Industrial metals are more demand-driven but can be indirectly affected by EUR shifts.
• Agricultural Commodities (Wheat, Corn, Soybeans): Inverse correlation – Eurozone purchasing power directly impacts demand when EUR weakens.

Commodities and the Japanese Yen (JPY)

• Crude Oil: Inverse correlation – Japan is a major oil importer. Accordingly, a weaker yen increases import costs, reducing demand.
• Natural Gas: Inverse correlation – Japan’s reliance on LNG imports links gas prices inversely to JPY strength.
• Gold and Silver: Direct correlation – Both metals are safe-haven assets in Japan, often sought when the yen strengthens during global economic unknowns.
• Copper: Weak correlation – Copper demand in Japan is more driven by industrial needs than currency shifts.
• Agricultural Commodities (Wheat, Corn, Soybeans): Inverse correlation – A weaker yen makes these essential imports costlier. In turn, this reduces purchasing volumes.
• Industrial Metals (Iron Ore, Aluminum): Weak correlation – Japan’s industrial output influences demand more than direct yen movements.
• Coffee and Sugar: Inverse correlation – As imported goods, their affordability is affected by JPY strength. A weaker yen will raise costs.

Commodities and the British Pound (GBP)

• Crude Oil: Inverse correlation – Oil priced in USD means a weaker pound increases costs for UK buyers.
• Natural Gas: Weak correlation – The UK’s diversified energy sources lessen the direct impact of GBP fluctuations on natural gas.
• Gold and Silver: Direct correlation – Safe-haven metals rise with GBP strength during global instability, though inflation can disrupt this trend.
• Agricultural Commodities (Wheat, Corn, Soybeans): Inverse correlation – Imported goods become costlier with a weaker pound, impacting trade.
• Coffee and Sugar: Inverse correlation – The UK’s reliance on imports ties commodity affordability to GBP fluctuations.
• Industrial Metals (Copper, Aluminum): Weak correlation – Price trends depend more on global demand than GBP shifts.

Commodities and the Australian Dollar (AUD)

• Crude Oil: Inverse correlation – Oil imports dominate Australia’s energy sector, and a weaker AUD increases import costs.
• Gold: Direct correlation – Australia is a major gold producer. Stronger AUD aligns with higher gold prices domestically.
• Iron Ore: Direct correlation – As Australia’s largest export, higher iron ore demand strengthens the AUD.
• Copper, Aluminum, and Platinum: Direct correlation – As key Australian exports, demand for these metals influences AUD value positively.
• Agricultural Commodities (Wheat, Corn): Direct correlation – Australia’s significant agricultural exports link AUD strength to commodity performance.

Commodities and the Canadian Dollar (CAD)

• Crude Oil: Direct correlation – Canada’s oil exports drive CAD strength, with higher oil prices bolstering the currency. One of the most well-known currency-commodity correlations.
• Natural Gas: Direct correlation – Canada’s natural gas exports show a similar effect on CAD value as oil.
• Gold and Silver: Weak correlation – While mined in Canada, these metals’ global pricing limits their impact on CAD.
• Agricultural Commodities: Weak correlation – Canadian wheat and soybean exports benefit the CAD marginally compared to energy exports. Canada isn’t able to grow as much as many other countries because of its frigid climate.

Commodities and the Swiss Franc (CHF)

• Gold and Silver: Direct correlation – As a safe-haven currency, CHF often strengthens alongside precious metals in times of greater geopolitical unknowns.
• Crude Oil and Natural Gas: Weak inverse correlation – Switzerland’s low reliance on these imports results in minimal currency impact.
• Industrial Metals: Weak correlation – Switzerland’s limited industrial production reduces CHF sensitivity to these commodities.
• Agricultural Commodities: Inverse correlation – Imported food commodities like wheat and corn are sensitive to CHF movements.

Commodities and the Chinese Yuan (CNY)

• Crude Oil: Inverse correlation – China is the largest oil importer, so a weaker yuan raises oil import costs, potentially reducing demand.
• Natural Gas: Inverse correlation – Similar to crude oil, China’s growing natural gas imports are more expensive when the yuan weakens.
• Gold and Silver: Direct correlation – Precious metals serve as a hedge against yuan depreciation, and domestic demand often increases during periods of yuan weakness.
• Copper: Direct correlation – China is the largest consumer of copper globally. Strong industrial demand boosts both copper prices and the yuan.
• Iron Ore: Direct correlation – China’s construction and manufacturing sectors drive iron ore demand, linking its price to yuan strength.
• Agricultural Commodities (Wheat, Corn, Soybeans): Inverse correlation – As a major importer, these commodities become more expensive when the yuan weakens.
• Aluminum and Industrial Metals: Direct correlation – China’s dominant role in global metal production and consumption ties stronger metals demand to a robust yuan. China is most known for its production of rare mineral, such as gallium, germanium, antimony, and superhard materials.
• Coffee and Sugar: Inverse correlation – Imported agricultural goods are sensitive to yuan fluctuations, with a weaker yuan making imports costlier.

FAQs – Currency-Commodities Correlations

What are commodity currencies?

Commodity currencies, in the context of CAD (Canadian Dollar) and AUD (Australian Dollar), refer to currencies of countries that are significant exporters of commodities such as oil, gas, metals, and agricultural products.

The value of these currencies tends to be correlated with the price fluctuations of the commodities they export. For instance, when commodity prices rise, these currencies often strengthen because the income from exports increases.

Conversely, when commodity prices fall, these currencies can weaken. This is because the economic health of these countries is closely tied to their natural resources and how much they earn from exporting them.

So, the CAD and AUD are considered commodity currencies because Canada and Australia are major commodity exporters, and their currency values are influenced by changes in commodity prices.

What are safe-haven currencies?

Safe-haven currencies are those that investors and traders flock to during times of greater economic unknowns or market volatility.

These currencies are perceived as being less risky, meaning they’re more likely to retain their value when other currencies or assets are losing theirs.

Examples include the US dollar (USD), the Swiss franc (CHF), and the Japanese yen (JPY). 

The reasons these currencies are considered safe havens vary.

For instance, the US dollar is the world’s reserve currency, meaning it’s widely used for international trade and financial transactions, giving it a unique stability. 

The Swiss franc is seen as a safe haven due to Switzerland’s strong economy, low debt, and its reputation for neutrality.

Meanwhile, the Japanese yen is often sought after because Japan is one of the world’s largest creditors, with a significant amount of foreign assets. 

So, when global markets get shaky, traders and investors often move their money into these currencies to protect their wealth.

What is the state of the world’s reserve currencies?

Let’s look through them one by one.

US Dollar – The US dollar’s status as the world’s dominant reserve currency stems from its deep integration into global trade, finance, and investment systems. But this position is increasingly being challenged due to structural risks like rising US debt levels, significant dollar creation, and the weaponization of the currency through sanctions. Alternatives like the Chinese yuan are gaining traction, but the USD remains the preferred reserve currency due to its historical entrenchment and the lack of a fully scalable substitute, even as emerging trends signal shifts in global monetary dynamics.

Euro – The euro is a structurally weak currency created by a union of countries that are economically and politically fragmented, lacking cohesive policies and unified military power to support its global influence.

Yen – The yen, while significant domestically, is minimally used internationally and shares challenges with the US dollar, including high debt levels, rapid debt monetization, and unattractive interest rates, compounded by Japan’s status as a moderately influential global power.

British Pound – The British pound, once dominant, is now largely held due to historical legacy rather than strong fundamentals, as the UK is relatively weaker in terms of economic and geopolitical power.

Gold – Gold remains a valued reserve asset because of its historic reliability as a store of value, particularly prior to 1971 when it underpinned the global monetary system. Its market size limits its role as a primary reserve asset despite its immunity to fiat currency overprinting.

Chinese Yuan (RMB) – The Chinese yuan is the only reserve currency chosen primarily for its fundamentals, reflecting China’s dominant role in global trade, its economic size, and robust reserves. It nonetheless faces challenges including limited international usage, restricted capital flows, an underdeveloped financial system, and the need to build global investor trust.