Gold Currencies

Australia is the third largest producer of gold. In recent years, the Australian Dollar has had an 85% positive correlation with the price of gold and the New Zealand Dollar has had a staggering 90% positive correlation with the price of gold. The price of gold has a served as a leading indicator, giving traders a preview of the movement of both currency pairs.

In other words, when gold price rises, the Australian and New Zealand Dollar appreciate as well. In addition, due to the proximity of New Zealand to Australia, many goods are often interrelated between the two countries, resulting in the New Zealand Dollar in this high positive correlation with gold prices. Consequently, the health of the New Zealand economy is heavily tied with the health of the Australian economy, making the two currencies extremely similar for traders.

In terms of other correlations, the Swiss franc and gold prices have a somewhat moderate correlation. The country’s political neutrality and the idea that its currency was once backed by gold makes the franc a choice of investment during political upheaval around the world. The EUR/USD pair is also said to also have a moderate correlation with gold, as gold is often seen as an alternative investment to the dollar, resulting in the strengthening of the EUR/USD pair.


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Controlling The Fed Funds Rate

ben bernankeWhen Bernanke announces the federal funds rate target, the world listens. Everyone from the blue-collar American to the foreign multi-millionaire has a stake in his comments.
Many understand the significance of these rate changes but few know how they are enacted. After all, interest rates respond to the framework of supply and demand, right? Except for b-school students and economics enthusiasts, most people are oblivious to the behind-the-scenes action of manipulating short-term interest rates.

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