For our purposes, we divide currencies into two groups and cross them with the USD as a common denominator. The first group, the Trade Currencies, are those historically most influenced by trade issues.
The second group, the Capital Flow Currencies, are those most affected by changes in capital flows (money in and out of an economy). Keep in mind that there is a lot of overlap and since yields can change over time, the emphasis you place on one factor over another may shift.
International trade currencies: These currencies are heavily influenced by changes in global demand for raw materials (commodities) and finished goods. A few of them (CAD, AUD, NZD) are often referred to as the “commodity currencies.” Currently the GBP, AUD and NZD also have very high target interest rates in their economies and are therefore also very sensitive to changes in the forces behind capital flows such as interest rates, the credit market and yields.
GBP/USD
AUD/USD
NZD/USD
USD/CAD
USD/JPY
Capital flow currencies: These currencies are heavily influenced by changes in demand for investments including equities, bonds and interest bearing investments. You will notice that there are some currencies that overlap. This is not accidental. It is impossible to rigidly define them.
EUR/USD
GBP/USD
USD/CHF
USD/JPY
Thursday, February 7, 2008
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