Wars and geopolitical conflicts have immediate and lasting effects on commodity-linked currencies (aka “commodity pairs”). These currencies are tied to countries that heavily export natural resources. Here’s how wars disrupt them—and how to trade the volatility.
1. What Are Commodity Pairs?
These forex pairs are tied to nations reliant on commodity exports:
| Currency Pair | Key Commodity | Country |
|---|---|---|
| AUD/USD | Iron Ore, Coal | Australia |
| USD/CAD | Oil | Canada |
| NZD/USD | Dairy, Lumber | New Zealand |
| USD/RUB | Oil, Gas | Russia |
| USD/NOK | Crude Oil | Norway |
2. How Wars Impact Commodity Pairs
A. Supply Shock → Commodity Prices Surge
- Example: Russia-Ukraine war (2022) disrupted oil/gas exports → USD/CAD fell (oil ↑ = CAD ↑).
- Mechanism:
- War reduces supply → Oil/Gold/Iron Ore prices spike.
- Exporting countries (CAD, AUD, NOK) benefit → Their currencies strengthen.
B. Safe-Haven Flows → USD & CHF Rise
- Investors flee to “safe” assets:
- USD, CHF, JPY gain strength.
- Commodity pairs (AUD, CAD, NZD) often drop due to risk-off sentiment.
C. Trade Route Disruptions → Export Delays
- Example: Houthi attacks in Red Sea (2024) raised shipping costs → AUD/NZD weakened (trade-dependent).
D. Sanctions & Bans → Currency Collapses
- Example: Sanctions on Russian oil (2022) → RUB crashed 50% in weeks.
3. Trading Strategies During War
Strategy 1: Buy Commodity-Linked Currencies (If Supply Drops)
- Pair: USD/CAD (if oil prices surge)
- Action: Sell USD/CAD (bet on CAD strength).
- Risk: Sudden peace deals crash oil prices.
Strategy 2: Short Risk-Sensitive Currencies (If War Escalates)
- Pair: AUD/JPY (AUD falls, JPY rises on fear).
- Action: Sell AUD/JPY.
- Trigger: Escalating Middle East tensions.
Strategy 3: Gold & Oil CFD Plays
- Gold (XAU/USD): Rises in war (safe-haven).
- Brent Crude (UKOIL): Spikes if Middle East supply at risk.
4. Key Wars & Historical Market Reactions
| Conflict | Impact on Commodity Pairs |
|---|---|
| Russia-Ukraine (2022) | Oil ↑ → CAD, NOK ↑ / RUB collapsed |
| Israel-Hamas (2023) | Oil ↑ briefly, Gold rallied |
| US-Iran Tensions (2020) | Oil ↑ 20%, CAD strengthened |
5. Risks to Watch
- False Flags: Rumors cause whipsaws (verify news).
- Central Bank Moves: Rate hikes can override war impact.
- Peace Deals: Sudden reversals (e.g., Ukraine-Russia talks in 2022 crashed oil).
