The comdolls is short for commodity dollars and is used to refer to currencies whose underlying economy is dependent on the price of a commodity. Major currencies associated with the term comdolls are the Australian, Canadian and New Zealand dollar. The Norwegian Krone is also sometimes included in this group due to oil being an important part of Norway’s economy.
Investors often need to get their hands on comdolls if they want to trade commodities. This is why the comdolls’ price action is often correlated with commodity prices. Since their economies rely on exporting commodities, their currencies tend to react to trends in commodity prices. In periods of world economic growth, oil tends to rise as countries trade more with each other. This drives oil exporting currencies such as Canadian Dollar (CAD) and Norwegian Krone (DKK) higher. This also applies to other commodities such as iron ore, which is a key ingredient for large infrastructure projects.
Anyone with an interest in sport will know the All Blacks teach the rest of the world how to play rugby. Yet anyone reading about their players will sometimes hear one referred to as having ‘farm strength’. This is referring to New Zealand’s economy being dependent on the price of milk, from the large amount of sheep they have! In fact there are more sheep than humans in New Zealand. Milk is their biggest export. This commodity’s price can be easily influenced by a sudden drop in demand from one key client: China.
Some currency pairs will have distinctive correlations to certain currencies. For example, the EUR/USD is positively correlated with gold and negatively correlated with the USD. Oil is positively correlated with USD as it is priced in dollars. Canada is the biggest exporter of oil to the US, as a result the CAD/USD is negatively correlated to the oil price. As the oil price rises, then the demand for CAD reduces due to its expensive price. This reduces the demand for CAD, leading to its depreciation. It should be appreciated that correlations can uncouple themselves from time to time.
The AUD/NZD are currencies which are popular for carry trades as both yield higher interest that many other major currencies. Their popularity for carry trades is also influenced by the predictive nature of their economies in times of economic expansion. A typical comdolls trade!
Many reading this article will fundamentally be interested in Forex trading and will wonder why they should be reading about oil and other commodities? The answer is that their prices influence the price of the Comdolls we are hoping to trade. Currency trading requires having knowledge of the goings on in central bank monetary policies as well as fiscal and economic policy.