What is a commodity currency?

A commodity currency is a currency that co-moves with the world prices of primary commodity products, due to these countries' heavy dependency on the export of certain raw materials for income. Commodity currencies are most prevalent in developing countries (eg. Burundi, Tanzania, Papua New Guinea ).

Is trading commodity currencies the same as trading commodities?

Now, trading commodity currencies is not the same as trading commodities. There’s a very big difference! Remember, a commodity currency is still just a currency at the end of the day. It’s just referring to a type of currency that correlates to the price of a certain commodity.

How do commodity currencies work?

Commodity currencies work on the same principle: as the price of the metaphorical lemonade changes, the country’s currency changes, too. That’s right: it’s not just announcements like Biden’s foreign policy directives that cause changes in the market—forex is also tied up with national economies and exports.