The Most Volatile Currency Pairs

Whether you’re a casual forex speculator or a full-time trader, volatile currency pairs offer a chance to make a lot of money in relatively short periods of time.

There can definitely be quite a bit of risk involved with these currency pairs, but if you’re willing to take the risk and know how to hedge your bets, this kind of forex can be very profitable.

What are the most volatile currency pairs?

The most volatile currency pairs are: AUD/JPY, GBP/EUR, CAD/JPY, USD/ZAR, USD/MXN, USD/TRY

AUD/JPY

AUD/JPY, or the Australian dollar against the Japanese yen, is pitting a currency strongly tied to commodity prices (the dollar) against one of the world’s reserve currencies (the yen).

Australia is a big exporter of coal, minerals, and agricultural products. As Australia’s imports increase, the dollar strengthens.

The yen, on the other hand, is a reserve currency sought out in times of hardship. These currencies tend to have an inverse relationship, which makes them a great volatile pair.

GBP/EUR

As discussed earlier, this is the pairing of the British pound against the euro. Though these two currencies were at one time linked, Brexit severed the connection.

This means that poor economic decisions by the UK can send investors running for the relative security of the euro. And though we have yet to see it, it presumably happens in reverse as well.

The future of this volatile pair depends on moves by the UK government. If they move to rejoin the European single market, for instance, that could see these currencies moving closer together.

CAD/JPY

This pairing of the Canadian dollar against the Japanese yen is similar to the AUD/JPY pairing, but with a twist. Canada’s economy is based on export of commodities, the biggest one being oil.

Japan, on the other hand, imports more oil than almost any other country, 78% of their usage. This means as oil goes up, the Canadian dollar increases and the yen decreases.

With countries moving towards electric cars and reduced fossil fuel production, especially in the wake of Russia’s invasion of Ukraine, we could see the Canadian dollar decrease quite a bit against the yen.

USD/ZAR

The US dollar against the South African rand is another pairing of a reserve currency versus a commodity conspiracy. South Africa’s currency is based on one commodity, in particular, gold.

Gold increases in price as investors lose faith in reserve currencies and other investments, which means the rand increases in value. And as investors move away from gold, the rand loses value, especially against the US dollar.

If you’re interested in using gold as a hedge against the dollar losing value, adding ZAR to your investments might be a good way to diversify.

USD/MXN

The US dollar against the Mexican peso is another pairing that depends heavily on politics. The NAFTA agreement in the 90s linked the currencies (along with the Canadian dollar).

But the US’ trade war against Mexico in recent years has increased tariffs on Mexican imports and introduced a lot of volatility in this currency pairing. This has decreased the value of the peso quite a bit.

Things seem to be more stable with the Biden administration in office, but a Republican victory in 2024 could make this pairing profitable again.

USD/TRY

The US dollar against the Turkish lira has long been an extremely volatile pair. The failed coup against Recep Tayyip Erdoğan in 2016 only increased the volatility.

Erdoğan, who has dominated Turkish politics since his first term as Prime Minister since 2003, faces an uncertain future. Though he keeps an authoritarian grip on power, he has many rivals, especially in the military.

Pairing this volatile currency with the world’s reserve currency allows you to profit from any future Turkish political wobbles. But this could change- the lira was revalued in 2005 and could be again.

Read also: Most Commonly Traded Currency Pairs

Pros And Cons Of Volatile Pairs

The biggest upside involved in trading in volatile pairs is money. For instance, at the end of September, the British pound fell to new lows versus the Euro following the announcement of former Chancellor of the Exchequer Kwasi Kwarteng’s mini-budget.

Those who purchased euros and bet on the pound losing value made a pretty profit in just a few week’s time.

However, there can be quite a lot of risk involved in volatile pairs, especially if one of the pair is an unpredictable emerging market. And if you’re trading in smaller currencies, you may not be able to cash out your bet. This can mean a lot of illiquidity.

But for those who are smart about the risks and use these most volatile currency pairs as part of a broader strategy, there’s a lot to like about them.

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