Most Volatile Currency Pairs You Should Know Before Trading

Do you think that trading in the most volatile currency pairs is a loss-making proposition? Maybe you are missing out on the profit waiting for you! Yes, you still need to be tactical and strategic when opening and closing positions. However, the increased possibility of dramatic price movements in currency pairs opens up avenues for higher profits while also exposing you to market risks.

Factors affecting dramatic price movement in volatile forex pairs include interest rate differentials, geopolitics, the economic strength of the countries whose currencies are involved, and the import and export value of these nations.

In this article, we will discuss the most volatile forex pairs worldwide. Before that, lets have a quick overview of the things to keep in mind before trading in volatile pairs.

The Right Approach to Trading in the Most Volatile Forex Pairs

Before opening a position in a volatile forex pair, pay attention to the fact that it will likely have lower liquidity than less volatile pairs. The reason is that many traders may not exhibit a risk appetite for taking a position in a volatile market. However, by creating a comprehensive trading and risk management strategy, you can navigate the volatility confidently.

The List of Most Volatile Forex Pairs

As volatility affects different currency pairs at different times, finding a definitive list of forex pairs with most volatility is hard. The degree of forex volatility differs based on the factors mentioned above. However, looking at the historical price trends, we have found some currency pairs recognized for extreme volatility.

AUD/JPY

It comes first on the list of forex pairs with most volatility. Here, the Australian dollar is paired against the Japanese yen. The inverse relationship between the Japanese yen and Australian dollar makes the pair highly volatile. The Australian dollar is a commodity-based currency as its price depends largely on the volume and value of its key exports, such as metals, minerals, and agricultural products. On the other hand, the Japanese yen is regarded as a safe-haven currency as investors can switch to it to effectively deal with economic hardship. This often leads to a dramatic price movement in this pair based on the existing global economic outlook.

NZD/JPY

The second one features the New Zealand dollar and the Japanese yen in pairs. The New Zealand dollar, like the Australian dollar, is a commodity-driven currency as its price depends on the agricultural exports the country makes. Top exports from New Zealand globally include eggs, meat, dairy, honey and wood. The price variations across these markets can significantly impact the value of NZD against JPY.

GBP/EUR

GBP/EUR, which represents the British pound and the euro, has witnessed increased volatility following the exit of Britain from the European Union in 2020. The start of 2021 saw the pound remaining around 15% weaker compared to the euro than it was on the eve of the referendum on the British membership of the EU in June 2016. The pound remained 20% weaker compared to when the EU Referendum Act gained Royal Assent in December 2015.

CAD/JPY

The next on the list of most volatile forex pairs is CAD/JPY. The safe-haven JPY is paired against the Canadian dollar, where the value of the latter depends heavily on the oil price in the commodity market. Also, Japan ranks among the leading oil importers globally. So, if the oil price surges, the cost of purchasing Canadian dollars with yen will also rise. The reason is simple. The surge in oil prices makes it necessary to convert more yen into CAD to purchase a single oil barrel. As a result, the price of this currency pair also grows. Traders investing in this currency pair should keep a close eye on oil markets and news updates around them.

GBP/AUD

The pairing of the British pound against the Australian dollar also ranks among the leading volatile forex pairs worldwide. These two currencies have proven to be correlated with each other historically as Australia is part of the Commonwealth of Nations. As mentioned previously, AUD is a commodity-driven currency with the price heavily linked to the exports Australia makes. However, the trade war between the US and China saw a decline in demand for Australian products in China. As China is one key trading partner Australia has, the war does not augur well for manufacturers and exporters Down Under. They maximize when having strong trades with China.

Wrapping Up

Successful trading experience usually results in the most volatile forex pairs when done based on fundamental and technical analysis. The economic, political and other events of the country whose currency is involved call for a thorough review by traders. Try to figure out which way the currency is going to move in the near future. If it is going to rise, open a position and keep a close eye on the incidents shaping the forex market. If the price is likely to fall, consider shortening your position.

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