The Influence of Commodity Prices on Forex Trading

The current development of commodity prices and indices has a significant impact on the value of currencies in Forex trading. Take, for example, several commodities such as crude oil, gold, and natural gas, which can strongly influence the fluctuations of the USD and other currencies.

Similarly, the movement of stocks in America, which are part of the Dow Jones Index, also has an effect. If the stock movement in a country generally experiences a decline, then the value of the currency in that country will also be corrected downwards.

Crude Oil
Crude oil, or more commonly known as Crude Oil, is a commodity and a primary need of the world today. The categories of crude oil that are commonly traded worldwide are:

1. West Texas Intermediate (WTI), which is of the highest quality, sweet, golden yellow, and produced in Cushing, Oklahoma (USA).
2. Dubai-Oman, supplied to the Middle East and Asia Pacific.
3. Tapis (produced in Malaysia, supplied to East Asia).
4. Brent Blend, which consists of 15 types tested by the Brent and Ninian systems. This oil is produced in the eastern Shetland Basin waters in the North Sea. The production base is in Sullom Voe, Shetland. Countries in Europe, Africa, and the Middle East use this oil as a standard for commodity exchange.
5. Minas (produced in Indonesia, also supplied to East Asia).
6. OPEC Reference Basket, produced in OPEC member countries.

Recently, oil prices have fallen back to below $120 per barrel. This is due to Hurricane Edward disrupting gas & oil pipelines in the Gulf of Mexico, causing oil to be sold below normal prices (on sale) to save existing supplies from the storm. As explained earlier regarding global oil developments, oil-exporting countries like Canada will see a decrease in sales due to falling global oil prices. For example, the Canadian Dollar experienced a decline when oil prices dropped from $147.47 (July 15, 2008) to $118.38 (August 6, 2008). At that time, the USD/CAD chart recorded a sharp increase. Conversely, with the rise in global crude oil prices:

• The value of the USD will weaken. This is because the oil consumption burden in the United States will also increase, followed by a negative trade balance.
• The value of currencies in oil-exporting countries like CAD (Canada) and NOK (Norway) will rise.
• The value of other currency pairs against the USD such as AUD/USD, EUR/USD, GBP/USD, and NZD/USD will be followed by a weakening of the USD/CHF, USD/JPY, and USD/CAD pairs.

Gold
Who doesn't know this commodity? This commodity, symbolized by XAU, is measured in purity by karat, with the purest range being 24 karat. The current gold price is at a high level due to its limited supply. The U.S. government first pegged the gold price at $20.67 per troy ounce ($664.56/kg), which rose to $35 per troy ounce or equivalent to $1125.27 per kg in 1934. In 1961, the U.S. and Europe manipulated prices in the market, causing gold prices to soar at that time. Now, the price of gold has reached $892.4 per ounce. In 2005, the World Gold Council estimated the world's gold supply to be 3,859 tons. If we subtract the total demand for gold, which reaches 3,754 tons, there is still a surplus of 105 tons.

Gold is the standard of value for most countries' currencies, just like in the United States. Therefore, it can be said that gold is the second most valuable commodity after oil. The country most sensitive to fluctuations in gold prices is AUD.

Dow Jones Index
The Dow Jones Index is the main index that encompasses all service sectors, including exchange rates and various other investment products. The most well-known is the Dow Jones Industrial Average, or more commonly known as the Dow Jones Index, which includes 130,000 types of fixed income and alternative investment products, including hedge fund investments and commodity markets. DJI is also the owner of the Dow Jones STOXX Index, one of the index bases that includes European indices, Wilshire Associates (Dow Jones Wilshire Global Index), which consists of data from the Dow Jones Wilshire 5,000, which includes indices in 60 countries and 12,000 securities companies. The system within it is an integrated and unified system.

In essence, the Dow Jones Index reflects 95% of the capitalization of American companies, excluding small and medium enterprises whose stock movements are slow. If the movement of the DJI weakens or strengthens, then the movement of the USD will also be affected. If all stock prices included in the DJI rise, then the value of the USD will also tend to rise, and vice versa.