Forex currency pairs usually include the US dollar as it is the most used and one of the most stable currencies from around the world. In 2019 it was estimated that 88% of all Forex transactions contained the USD.
However, trading currencies in the Forex market without including the USD gives traders a wider selection of currencies to choose from. These major pairs that are traded without the USD are called minor currency pairs, or cross currency pairs because they simply cross over the dollar.
These minor currencies include worldwide currencies such as the Euro, British pounds, Japanese yen, and Swiss franc. These currencies belong to strong economies that facilitate the stability of these currencies.
You might find other variations of these cross currencies, including the New Zealand dollar, Australian dollar, and Canadian dollar. These currencies might be weaker than the primary currencies listed above, but they add to the diversity of the minor currencies.
The interest rate differentials between these currencies lead to volatility in trading these cross pairs, which might look similar to exotic currency pairs. However, the difference is that those cross currencies do not include emerging markets.
Additionally, the liquidity of these pairs also varies depending on the traded pair. For example, the EUR/GBP is more liquid than the CHF/NZD despite both being named cross pairs. The reason that the EUR/GBP pair is more liquid is that both currencies are geographically located next to each other and there are different trade agreements between them. As such, you can see how the UK and the EU might have more trade happening between them, creating a greater need for currencies to be exchanged, which leads to higher levels of volatility.
Top minor currency pairs
Minor currency pairs bring up the best of both worlds. They are reliable since they are supported by strong economies, plus they have higher volatility.
This gives traders a wider selection of pairs that can be traded as cross currency pairs, and we are going to look at some of the commonly traded crosses:
EUR/GBP
This cross-currency pair is one of the most traded pairs and contains currencies from two strong economies in Europe. In 2016, when the Brexit referendum took place, many traders speculated on this pair, and it was widely traded.
This pair is generally affected by the decision of the local national banks, and economic indicators such as inflation, unemployment, and interest rates. Trade has also become an important matter since the UK departed from the EU.
GBP/AUD
This minor currency pair is also commonly traded and includes one major currency, the British pound, against the Australian dollar. The GBP has faced quite a bit of fluctuation since Brexit was concluded in 2020.
The Australian economy relies heavily on producing and exporting commodities such as coal, iron ores, and meats, so when the price of these commodities changes, it directly affects the AUD. The GBP is also affected by local interest rates and unemployment statistics.
NZD/JPY
This currency pair is another top minor currency pair that includes one major currency, the Japanese yen, paired with the New Zealand dollar. The volatility of this cross-currency pair is relatively high due to the different economic indicators between the two economies.
Japan has a stable economy with steady growth and low-interest rates, while the economy of New Zealand is smaller, and relies on exporting several natural resources and dairy products, as well as relying on tourism. It is important to note that recent shifts in the tourism industry have caused higher volatility in this currency pair.
CAD/JPY
This pair is yet another top cross-currency pair. It includes one of the strongest currencies in Asia and an important currency in North America.
The Japanese economy is stable, its interest rates are low, and the rate of economic growth is steady without any sudden changes. On the other hand, the Canadian economy relies on exporting natural resources and dairy products which can cause economic changes based on the supply and demand of its products.
The Canadian dollar has lately been affected by labor shortages, which changed the pattern of its imports. Additionally, any change in the price of commodities that Canada exports can cause a shift in its currency value.
AUD/JPY
This minor currency pair includes the stable Japanese yen and the recently recovering Australian dollar. This pair is affected by the price changes of the commodities that Australia exports. The Australian economy relies heavily on exporting natural resources and dairy products.
While the Japanese economy is more stable, it relies on internal economic stability and the low-interest rates of the Bank of Japan to keep its currency stable.
