How other assets can impact the movement of currencies in the currency market

The foreign exchange market is the largest financial marketplace on the globe, but it’s important to keep in mind that asset classes in other markets affect the movement of currencies. In this article, we will discuss the impact of commodities, equities, and bonds on the currency market.

Gold has distinctive characteristics which make it a unique asset. It is indestructible and limited in supply, which has made it a desirable asset for centuries. The yellow metal is a proven hedge against inflation and currency debasement and is perhaps the ultimate “safe haven” asset, which historically has attracted investors in times of economic crisis.

In April 2025, gold hit a record high of $3500 an ounce. Gold prices have soared 28% in 2025, benefiting from global economic uncertainty. US President Trump’s erratic tariff policy has shaken up the financial markets, the Ukraine-Russia war shows no signs of ending, and the Middle East remains a flashpoint which could erupt at any time.

Gold and the US dollar generally have an inverse relationship, for several reasons. Traditionally, in times of economic turmoil, investors will move to gold at the expense of other assets, including the US dollar, which will send the dollar higher and gold lower. There are other reasons for the inverse relationship:

• Gold is priced in US dollars, so when the dollar appreciates, fewer dollars are required to buy the same amount of gold, which pushes the price of gold lower.
• Buyers of gold that use other currencies must purchase gold with dollars. A strong dollar means that gold is more expensive for these buyers, reducing the demand for gold.

Aside from the US dollar, gold also has a correlation with other major currencies.

Australia is the third-largest gold producer in the world, after Russia and China. Historically, there is a strong, positive correlation between the Australian dollar and gold, which means that the two tend to move together in the same direction. AUD/USD has improved about 5% in 2025, with higher gold prices giving a boost to the Australian dollar.

The Swiss franc also has a positive correlation with gold, as both are traditional safe-haven assets. When the dollar weakens, traders will often snap up gold and Swiss francs.

The Swiss franc has gained about 11% this year against the dollar. Also, Switzerland has the 7th largest gold reserve in the world and boasts the most gold per capita in the world, creating a strong link between gold and the Swiss franc.

Like gold, the Swiss franc has made strong gains against the US dollar this year, rising about 11%.

Australia is the largest producer of iron ore in the world. China, the second-largest economy in the world after the US, imports around 65% of its iron ore requirements from Australia. China’s economic troubles have resulted in less demand for commodities such as iron ore, most of which is used to produce steel. This has depressed the price of iron ore, which has had a negative impact on the Australian export sector and weighed on the Australian dollar.

Oil is the world’s largest energy source, constituting 33% of the total energy supply across the world. Canada ranks as the world’s fourth-largest oil producer and is the largest supplier of oil to the United States, exporting about 4.5 million barrels daily to its southern neighbour.

Due to the enormous volume of oil involved, there is a strong demand for Canadian dollars, and there is a strong positive correlation between the Canadian dollar and oil.

If the US economy is doing well, the demand for oil increases, which leads to higher oil prices and a stronger Canadian dollar. Conversely, weaker demand for oil often weighs on the Canadian currency.

Equities are considered to have a higher risk than fixed-income investments such as bonds. A rally in equities reflects higher risk appetite, which often will push the safe-haven US dollar lower. At the same time, risk currencies such as the Australian and New Zealand dollar will appreciate due to higher risk appetite. Conversely, a decline in equities will signal reduced risk on the part of investors and will result in the US dollar rising and risk currencies losing ground.

A bond is a debt security in which an investor lends money to a government or corporation for a defined period of time. The investor receives regular interest payments (rate of return) and repayment of the principal at maturity. The rate of return on the bond is known as the bond yield.

Bonds are considered a safe, low-risk asset and have a positive correlation with the US dollar. US government bonds, such as 10-year Treasury notes, are closely monitored as an increase in the 10-year yield often results in the appreciation of the US dollar. In times of economic trouble, investors will move away from high-risk investments such as stocks in favour of bonds, which in turn boosts the value of the dollar.

The movement in bond yields can affect investor sentiment, which can have a significant impact on the movement of currencies. In January 2025, a huge sell-off in gilts sent the 10-year gilt yield to 4.91%, its highest level since the 2008 financial crisis. The spike in yields unnerved investors, as it signalled that the UK economy was in trouble. As a result, the British pound sank in the following days and fell to its lowest level in 14 months.

It is important for traders and investors who deal in forex CFDs to understand that asset classes in other markets often have a correlation with currencies.

Commodities, oil, equities, and bonds all play a significant role in the value of currencies.