Forex pairs: What Are the Most Commonly Traded Currency Pairs?
USD/CAD is commonly called the ‘loonie’ on account of the loon bird which appears on Canadian dollar coins, and it represents the pairing of the US dollar and the Canadian dollar. In 2019, USD/CAD transactions made up 4.4% of daily forex trades.1 The strength of the Canadian dollar is closely linked to the price of oil because oil is Canada’s main export. For example, if American interest rates are low, USD would probably weaken against AUD and it would cost more US dollars to buy one Australian dollar. The pair is perhaps one of the most difficult exchange rates to predict, because of the close but uncertain link between the economies. The run up to Brexit caused a highly volatile price for EUR/GBP, and as the UK heads for a deeper recession than the Eurozone, it’s likely the pound will suffer more losses against the EUR. AUD/USD, often called the ‘Aussie’, makes up 5.4% of daily forex trades.
Conversely, when trading commodities or stocks, you’re using cash to buy a unit of that commodity or a number ofshares of a particular stock. Economic data relating to currency pairs, such as interest rates and economic growth or gross domestic product , affect the prices of a trading pair. The major currency pairs comprise up to 75% of forex volume, which makes them easier to trade than minors and exotic pairs because they have the majority of buyers and sellers. Not surprisingly, all of these pairs contain the US dollar – due to the sheer size of the US economy. But, this does not mean that there is no volatility in this pair – and there is still an opportunity for traders to realise a profit. It was also true the 2020 US-China trade war affected the value of the euro and the US dollar respectively.
For example, in August 2022, US House Speaker Nancy Pelosi visited Taiwan, which caused Beijing to suspend US-China climate talks and cut off high-level military communication channels. Historically, the value of the yuan has been low compared to the US dollar because the Chinese government has artificially driven down the price to keep its exports competitive on the global market. More recently, in September 2022, traders flocked to GBP/USD as the UK government and Bank of England battled to keep inflation under control, causing the pound to plummet to its lowest level since 1985. Discover the range of markets you can trade on – and learn how they work – with IG Academy’s online course. Investopedia requires writers to use primary sources to support their work.
These include interest rates, geopolitical instability, the strength of their country’s economy and the level of foreign direct investment in the domestic market. But – similar to the yen – the Swiss franc owes much of its popularity status to a relatively stable currency. This has made the franc a popular currency in times of economic uncertainty or market turmoil, as traders seek markets that are perceived as less volatile – similar to the USD/JPY pair. In recent years, this currency pair has fluctuated in price quite unpredictably – primarily due to the uncertainty surrounding Brexit. The high level of volatility can be attractive to traders, but it is important to have a risk management strategy in place before opening a position in a volatile market.
But the value of the Canadian dollar is also heavily correlated with commodity prices, especially the price of oil, as Canada’s economy relies heavily on exporting crude. So, this makes it important to monitor the price of oil to determine the ideal time to buy if you want to exchange USD for CAD. The currency pair is nearly always grouped into the volatile category, and these large jumps have contributed a lot towards the popularity of the GBP/USD. But remember, with greater volatility comes greater risk, making it important to set stops and limits to protect your trades. EUR/USD – or the ‘fibre’ – is widely considered the most popular forex pair as it typically comes with the highest volume and among the lowest spreads.
Forex trading is the simultaneous buying of one currency and selling of another. But this means that in periods of economic stability, the CHF will often weaken in value when other currencies are appreciating. USD/JPY has also become a popular way of trading the relationship – or rather tensions – between the United States and Asian regions as competition heats up in areas such as technology and e-commerce. EUR/USD is a common trade for beginners because there’s usually a lot of information available online about the pair.
That’s why the yen is commonly said to be under a ‘dirty float’ regime – as it is a floating currency, but not in the truest sense of the word. So, trading USD/JPY is a means of capitalising on these more regular fluctuations – if you’re able to buy and sell at the right time. The forex market is known for its high liquidity, which means that transactions can be executed quickly and efficiently.
Live forex currency rates in pairs
Most traders prefer a tighter or narrower spread, as it indicates lower volatility but high liquidity. Our forex trading page has a breakdown of all spreads and margins that we offer on our currency pairs. These are the least traded in the forex market, and are less liquid than the cross pairs. Prices can fluctuate greatly, and due to the lower volume of trades, spreads can be wide. There also tends to be less historical data on these pairs, so those relying on technical analysis may find information harder to come by.
This is because forex trading is simultaneously buying one currency and selling another. The currency pair itself can be thought of as a single unit, an instrument that is either bought or sold. Examples are the euro and US dollar (EUR/USD), or the British pound and Japanese yen (GBP/JPY). The three main types of currency pairs are majors, minors and exotics. The major currency pairs are often the most popular to trade, as they are the most liquid.
Cross currencies
It’s popular among traders as the value of AUD is highly correlated with the commodities, so creates a means for FX traders to get exposure to the market without trading futures contracts themselves. Due to major forex pairs being the most liquid and widely traded in the world, they will likely have tighter spreads. These tighter spreads reduce one’s dealing costs, and therefore increase the margin for profit.
In turn, this would cause the price of AUD/USD to fall – as fewer US dollars are needed to buy an Aussie dollar. It’s also worth bearing in mind that as oil is priced in US dollars, if the price of oil rises, it’s likely that the value of the Canadian dollar will strengthen compared to the US dollar. First, the dollar normally weakens when oil rises, because more dollars are being converted into other currencies to buy oil. The EUR/USD pair is primarily influenced by political movements that affect the dollar, the euro and their relationship to one another.
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If you want to start trading AUD/USD, it is important to keep an eye on the value of coal and iron ore on the commodities market, as well as the value of other metals such as copper. This is because any fluctuation in the value of these commodities will likely cause a reciprocal fluctuation in the value of the Australian dollar relative to the US dollar. To keep up to date with any Brexit news that may have affected the price of the EUR/GBP currency pair, visit IG’s Brexit events page. Much in the same way as the Fed and ECB, the Bank of Japan sets the interest rates for the Japanese economy which, in turn, affects the value of the yen relative to the US dollar.
Compared to the crosses and exotics, the price moves more frequently with the majors, which provides more trading opportunities. An exchange rate is the relative price of two currencies from two different countries. That’s because Australia remains one of the most dominant exporters of coal and iron ore in the world. A slump in commodity prices would impact the economy and decrease the value of the Australian dollar.
Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. With IG, you can trade the USD/CNH currency pair – CNH being the offshore version of the yuan that is traded outside of mainland China.
How to trade the major forex pairs
Decide if you want to buy or sell based on whether you think that the instrument’s price will rise or fall. Our forex indices are a collection of related, strategically-selected pairs, grouped into a single basket. Trade on our 12 baskets of FX pairs, including the CMC USD Index and CMC GBP Index. The value of the Canadian dollar is largely tied to the price of oil because the commodity is Canada’s main export. The information in this site does not contain investment advice or an investment recommendation, or an offer of or solicitation for transaction in any financial instrument.
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These are all things to take into consideration when trading on currency pairs. Interest rates are controlled by the monetary policy of that currency’s respective central bank. For example, if the US Federal Reserve raises interest rates it will usually cause the US dollar to strengthen against the euro, causing the price of EUR/USD to drop. As a result, traders often turn to CHF during times of increasing market volatility, but the Swiss franc will typically see less interest from traders during times of greater market stability. During times of increased volatility, it is likely the price of this pair would drop as CHF strengthens against the USD after experiencing increased investment.
