Relationship between commodity prices and currency exchange rates

Abstract

Commodities, namely gold and oil, have substantial connection to the Foreign Exchange market. Therefore, understanding the nature of the relationship between them and currencies can help currency traders gauge risk, forecast price changes, as well as understand exposure. Even if commodities seem like a wholly alien concept, gold and oil especially tend to move based on similar fundamental factors that affect currency markets. The paper aims to answer following questions. Is it true that there is a relationship between the movements of commodities' prices and exchanges rates of some currencies? And if this relationship exists what is it?.