Commodity countries

The lesson in full

Oil, copper, coffee, palm oil: raw materials traded in bulk are called commodities. Some countries live on what they dig or grow, so their economies rise and fall with those prices.
Indonesia and Malaysia grow more than 80% of the world's palm oil. In 2024 Indonesia also mined more than half of the world's nickel, after banning exports of raw nickel ore in 2020.
When export prices rise, more dollars flow in and the currency tends to strengthen. The Australian dollar (iron ore), Canadian dollar and Norwegian krone (oil) and Chilean peso (copper) are called commodity currencies.
AUD/USD, 2008 to 2015 (monthly). From about 0.61 in October 2008 it climbed above 1.10 in 2011, as Chinese demand pushed iron ore to record prices. When metal prices sank, it fell to about 0.69 in 2015.
Producers hate surprises. With a futures contract, a palm oil grower or a copper miner can lock in a selling price today for a delivery months away.
Common mistake
Myth: a commodity boom makes a country rich for good. Reality: booms end. When oil fell from over US$100 in 2014 to under US$30 in early 2016, oil exporters such as Venezuela and Nigeria were hit hard.
Key takeaway
Commodity prices drive the economies and currencies of the countries that produce them. Watch the commodity to understand the currency.

The Australian dollar often moves with the price of... Iron ore and coalAustralia sells a lot of iron ore and coal abroad, so higher prices bring in more money and support its currency.
Higher export prices usually bring a commodity country... More foreign moneyWhen what it sells is worth more, buyers abroad pay more dollars for the same exports.
A palm oil grower uses a futures contract to... Lock in a selling priceA futures contract fixes today the price of a sale in the future, so the grower is protected if prices fall.
Indonesia mines more than half of the world's nickel. If nickel prices crash, Indonesia most likely... Earns less from its exportsLower prices mean less money for every tonne it sells abroad.