Major currencies are important to be considered when you want to trade in the forex market particularly if you are new to the forex market because these currencies are the most liquid and mostly they are popular that attract many people to trade it whether it is for their business, personal reserve, or even for forex traders.
The high liquidity and popularity of major currencies give people advantages over non-popular currencies especially if you want to trade as a forex trader where you should consider choosing major currencies as they have a lower spread if you trade them than you trade exotic currencies or other currencies that are not liquid.
With no further background explanation, let us delve more into eight major currencies based on what I read on Dicks (2010, p. 11-15) which you can see below this.
1. United States Dollar (USD)
You know that everyone knows especially people who have an International Relations background like me that the United States (US) is a strong country even though there is a new rivalry coming from China. The US itself has a root ideology originally from Liberal ideology. The US has all that it takes to be a superpower where we can see according to Dicks (2010, p. 11) stating that the US has a strong influence on this world from technology, military, economy that runs the country. This means that if you trade this currency, then, you must be aware of the fundamental change that might occur such as The Fed decision or other economic events that affect the US economy.
2. Euro (EUR)
Euro is the currency of the European Union (EU) where the EU itself is a supranational organization that consists of many European countries such as Germany and France. This currency according to Dicks (2010, p. 12) was originally created in 1999 but implemented in 2002 with the aim of political integration and smoothening the free trade process. The European Central Bank (ECB) is the one that manages the monetary policy of this currency (Dicks, 2010, p. 12). So, you have to be aware of the news that involves ECB especially if the ECB released a certain monetary policy that might affect the Euro.
3. Australian Dollar (AUD)
Just as the name itself, AUD is the currency originally from Australia where this currency is a part of eight major currencies. To analyze this currency fundamentally one has to see from the political and economic conditions where this can be seen from what Dicks (2010, p. 13) wrote stating that Australia's economy mostly comes from domestic industrial production, exporting raw materials from mining activity, and also the agriculture sector. From this information, we can conclude that the economic status of Australia depends on them, so in case there is news that might bring news to Australia's economy it can either boost or underperform its currency.
4. Canadian Dollar (CAD)
Canada's location is closely tight with the US if you see it from the world map. This means Canada and the US can do bilateral cooperation in the economy that eventually made the two of them more prosper. This can be seen from Dicks (2010, p. 13) where he wrote that Canada and the US economy is similar because principally the two of them are trading partners. Dicks (2010, p. 13) also stated that CAD is related to oil prices so from this information we have to be wary when the oil news has out.
5. British Pound (GBP)
British Pound or GBP is originally currency from the United Kingdom (UK). The UK economy according to Dicks (2010, p. 13) has a strong agriculture and mining industry which from this information we can conclude that the economy of the UK is quite stable so the currency itself is stable. Personally, I rarely trade this GBP currency, so in this part, I do want to say much about GBP.
6. Confederatio Helvetica Franc (CHF)
CHF currency is originally from Switzerland and Liechtenstein and used by the Central Bank of Switzerland (Dicks, 2010, p. 14). The political and economic of Switzerland is stable and robust where according to Dicks (2010, p. 14) many people used this currency as their reserve currency by a rich person and big institution. This means that CHF currency is a strong currency where people believe in this currency by saving it as their reserve currency.
7. Japanese Yen (JPY)
When it comes to Japan, I always remember the Flying Geese concept which in that concept explained the leadership of Japan in East Asia. Yen, the official currency of Japan according to Dicks (2010, p. 14) is really sensitive to the price of crude oil and energy costs because that is where that fuels the industry of Japan. However, from my point of view, as long as the cost of energy and crude oil prices in Japan stay still, then, this currency may have a chance to stand strong. Also, if Japan develops alternative energy that can replace the energy cost, we can see that this currency will stay robust as Japan is famous for their high-technology
8. New Zealand Dollar (NZD)
The reason why New Zealand Dollar is a major currency can be seen from what Dicks (2010, p. 15) explained in his book where he wrote that the economy of New Zealand has become a free and industrialized market. With the free market, we all know that the economic conditions of one country will grow due to its high frequency of trading activity among other countries which also apply free market.
Conclusion
If you are a new forex trader who has just come into the forex market, then, these eight major currencies are good to be considered to trade them as they have high liquidity and thus the spread is lower than you trade with exotic currencies that eventually gives you more chance to be profitable in the forex market. Also, if you want to be a short-term forex trader, these eight major currencies will save your money from the high spread. However, if you trade long-term and you see that spread is not a problem for you, then, feel free to choose other currencies that you see worth trading.
Written by Andre I.
Reference
Dicks, James. 2010. Forex Trading Secrets: Trading Strategies for the Forex Market. New York: McGraw Hill.