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Cross currency rates

Cross currency rate stands for pairs of currencies that do not include the U.S. dollar. Cross currency rate can also be called cross currency or simply cross. Historically, an individual who wished to exchange a sum of money to a different currency would be required to first convert that money into the U.S dollars, and then convert it into the desired currency. Cross currencies help individuals and traders bypass this step.

Most traded crosses are formed of three currencies: the euro, the Japanese yen, and the British pound sterling

Euro

Pairs that include the euro are liquid. The most traded currency pairs included the euro are EUR/CHF, EUR/GBP, EUR/JPY. These pairs differ from the rest of currency crosses in their liquidity. Institutional traders who wish to trade Swiss franc may create the situation when the EUR/CHF pair becomes more liquid than the USD/CHF pair.

News which affects the euro rate or the Swiss franc rate will have a bigger impact on the euro crosses than on the euro and U.S. dollar pair or the U.S. dollar to Swiss franc pair. News relevant to Great Britain has a great impact on the euro and pound sterling pair.

It is worth noting that news from the U.S. plays a significant role in movements of the euro cross rates. American news greatly influences the pound sterling to U.S. dollar rate and the U.S. dollar to Swiss franc rate. That may change the rate of the pound and franc to U.S. dollar as well as it may affect the rate of the pound and frank against the euro.  The euro cross rate with the Swiss franc and the euro to the pound sterling can get changed on the background of the U.S. dollar rise.

The Swiss franc edging down leads to the rise in the euro to the Swiss franc cross rate because traders are going to sell out of their francs. This rule also works in the opposite situation in case of negative results in the U.S. economic releases.

Yen

Another group of commonly traded currency pairs included the yen is CAD/JPY (the Canadian dollar to the yen), NZD/JPY (the New Zealand dollar to yen), and GBP/JPY (the British pound to yen). These currency crosses give an opportunity for carry trades which make them popular with traders and investors. The carry trade involves selling a currency with low interest rate and then buying a currency the interest rate of which is higher; that allows making profits from the difference in rates.

The euro and yen are the most popular currencies for trading besides the U.S. dollar. They are held as reserve currencies in many countries as well as the U.S. dollar. So, the currency crosses included the euro or yen are the most liquid besides the majors, which depend on the U.S. dollar rate. Forming the most popular crosses, the yen is used for selling other major currencies.  The euro to yen pair had the largest amount of yen crosses sold in February 2010.

Pound sterling

Trends of crosses included the pound are difficult to analyze and forecast; they are mostly traded by professional traders.  Knowledge of macroeconomic conditions and indicators of certain countries are required to analyze these crosses. Currency crosses which are less popular have lower volatility and can be managed with speculations of some market participants.  Currency crosses with the British pound can be analyzed in relation to the major currencies. It is done with the major pairs included the U.S. dollar. The largest amount of transactions is made with GBP/CHF, GBP/AUD, GBP/CAD.

Commodity cross rates include national currencies of countries which economies heavily depend on the production and exports of raw materials such as oil, coal, gas etc. The rate of commodity currencies is deeply affected by commodity prices on the global market. That is the reason for traders who work with commodity currencies to monitor the news referred to commodity markets and different types of commodity.

Commodity currencies are the Norwegian krone, Venezuelan bolivar, Canadian dollar, Australian dollar, Russian ruble etc.

The most traded commodity crosses are AUD/CHF, AUD/CAD, AUD/NZD, CAD/CHF, NZD/CHF, and NZD/CAD.

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