What are the G10 currencies?
The G10 currencies is the name given to a group of currencies that are among the most used and traded currencies in the world. The G10 currencies list is as follows:
- United States dollar (USD)
- Euro (EUR)
- Pound sterling (GBP)
- Japanese yen (JPY)
- Australian dollar (AUD)
- New Zealand dollar (NZD)
- Canadian dollar (CAD)
- Swiss franc (CHF)
- Norwegian krone (NOK)
- Swedish krona (SEK)
The origin of the term ‘G10 currencies’ is unclear. While it is commonly believed that it correlates to the G10 countries, there is not a complete match between the two groups. The G10 countries are a group of industrialised countries that consult on economic and financial matters, which includes Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States.
As Belgium, France, Germany, Italy and the Netherlands are members of the European Union, and use the euro, they are represented in the G10 currencies group by a single entry. This leaves spaces for other currencies to fill the G10 currency list – the Australian dollar, the New Zealand dollar and the Norwegian krone.
What moves G10 currency pairs?
The volatility of forex markets can provide traders with a range of benefits, including the potential for increased profit, but also comes with increased risk, which makes it important to learn what moves forex markets. Knowing what has caused price fluctuations in the past, can help traders forecast the future price movements of their chosen currency pair. The main factors that influence G10 currency price movements are:
Some of the G10 currencies are linked to the price movements of commodities. It is natural for some currencies to be correlated with commodity prices because their economic growth is directly related to exports or a reliance on imports.
For example, the Australian dollar tends to be positively correlated with the price of gold and copper. Australia is the second largest producer of gold and the fourth largest copper producing country, so any changes to the demand for gold or copper can impact the health of its economy
Similarly, the Canadian dollar is oil linked because it is a net oil exporter, so any decline in the price of oil will often have a negative toll on the Canadian economy. The Japanese yen is also commonly linked to oil because it is a net importer, which means that Japan’s economy would benefit from declining oil prices. This relationship can cause exaggerated price movements in the CAD/JPY pairing.
A lot of commodity prices are sensitive to the behaviour of China – although it is classified among the emerging market (EM) currencies, it is one of the largest importing nations, and an economic superpower. Any improvement in the Chinese economy contributes to an increased demand for commodities, so the currencies of exporting nations – such as Australia and Canada – are likely to increase in comparison to other currencies. However, if China’s economy slows down, commodity-linked G10 currencies will suffer the most.
There will be times when these relationships break down, and traders need to actively monitor these correlations through inter-market analysis.
Central banks control the base interest rate of a country, and their decisions frequently trigger large movements in currency prices. By understanding and making an educated guess about future rate hikes or decreases, traders can predict the future direction of a given currency pair.
When a central bank raises interest rates, investors take this as a sign that the country’s economy will be boosted and the native currency will rise. For example, between 2002 and 2005 the central bank of New Zealand increased its interest rates, while Japan kept its interest rates low, which caused NZD/JPY to rally as New Zealand became more attractive to investors.