Comdolls is a nickname for the term “commodity dollar.”
Currencies like the Australian, Canadian, and New Zealand dollars are known as “comdolls” because their respective economies are highly dependent on exporting commodities.
Commodities are used as materials in the production of goods or services.
Australia is the second-largest gold producer globally, behind only China, while Canada is the fourth largest of the world’s oil producers. New Zealand exports a lot of dairy and meat.
Importers often need to get their hands on comdolls if they want to buy these commodities. This is why the comdolls’ price action is usually correlated with commodity prices.
What are Comdolls Currency Pairs?
The comdolls are short for commodity dollars and refer to currencies whose underlying economy is dependent on the price of a commodity. Major currencies associated with the term comdolls are the Australian, Canadian, and New Zealand dollars. The Norwegian Krone is also sometimes included in this group because oil is an essential part of Norway’s economy.
Investors often need to get their hands on comdolls if they want to trade commodities. This is why the comdolls’ price action is often correlated with commodity prices. Since their economies rely on exporting things, their currencies tend to react to trends in commodity prices. In periods of world economic growth, oil tends to rise as countries trade more with each other. This drives higher oil-exporting currencies such as the Canadian Dollar (CAD) and Norwegian Krone (DKK). This also applies to other commodities such as iron ore, a key ingredient for large infrastructure projects.
Which commodity affects which currency
Both Canada and Norway have substantial oil reserves, which contribute a great deal of tax revenue to their respective governments. Lower oil demand usually causes the oil price to drop. In turn, this usually results in their respective currencies losing value, as fewer people are buying their oil. Norway has made so much money from oil that it has even created a sovereign wealth fund to invest in its future. The current ‘lower for longer oil price over the past few years has affected the budgets of many countries. A perfect example would be Saudi Arabia. This has also reduced the sanctioning of new oil wells, which could mean a lack of oil in the future, pushing prices higher again!
Australia is one of the world’s highest exporters of Iron ore. China has been a critical client in recent years due to its vast infrastructure building programs. During the 2008 financial crisis, Australia was somewhat immune due to the large orders emanating from the Chinese. This gave the Aussie dollar (AUD) strength, especially as it was seen as a stable currency compared to many previously perceived strong ones such as the Pound Sterling and the Euro.
Anyone interested in sport will know the All Blacks teach the rest of the world how to play rugby. Yet anyone reading about their players will sometimes hear one referred to as having ‘farm strength.’ This refers to New Zealand’s economy being dependent on the milk price from the large number of sheep they have! There are more sheep than humans in New Zealand. Milk is their biggest export. This commodity’s price can be easily influenced by a sudden drop in demand from one key client: China.
Many reading this article will fundamentally be interested in Forex trading and wonder why they should be reading about oil and other commodities? The answer is that their prices influence the price of the Comdolls we are hoping to trade. Currency trading requires knowing the goings-on in central bank monetary policies as well as fiscal and economic policy.