Major global currencies pairs
In currency trading, the USD is the king of the hill as the world’s reserve currency. That means that USD pairs tend to be the most liquid and actively traded.
Currencies can be divided into groups.
Defensive currencies are those that tend to attract capital in times of fear, and include USD, the Japanese Yen (JPY), the Swiss Franc (CHF) and precious metals such as gold and silver. These also tend to be countries with low interest rates where people borrow money to invest in more active markets.
- Some of the most active pairs in this group include USDJPY and USDCHF
European Currencies such as the British Pound (GBP) and Euro (EUR) also represent a group sensitive to the European economy. In recent years, these currencies have been in the centre of the sovereign debt crisis with bailouts and government austerity programs having a major impact on sentiment.
- Key pairs in this group include EURUSD and GBPUSD
Currencies of resource exporters are particularly sensitive to swings in commodity prices. The Canadian Dollar (CAD) and Norwegian Krone (NOK) tend to be more sensitive to crude oil, with the Australian (AUD) and New Zealand (NZD) Dollars more sensitive to metal and grain prices and the South African Rand (ZAR) influenced by precious metal price trends.
- Popular pairs in this group include USDCAD, AUDUSD, NZDUSD, USDNOK and USDZAR
Cross Pairs
Currency pairs that do not involve the US Dollar are known as cross pairs. The reason for this is that the value of the cross pair is set by the relation of each currency to the US Dollar; else arbitrage opportunities would present themselves.
Some of the more popular cross pairs tend to occur within regions outside of North America such as EURGBP, EURCHF, and AUDNZD. Cross pairs between regions outside of North America are also significant such as EURJPY and GBPJPY.
Resource currencies can also give exposure to certain trends. For example, Australia is a big exporter of metals and grains and its largest customer is China. Canada is a big exporter of crude oil and metals/grains to a lesser extent and its main customer is the US. As such, AUDCAD is not only seen as a play between metals and energy but also as a play on China and the US.