Understanding Currency Names
5 months ago forexsimulation 0
Professional traders and not only, are not using the full name of a currency when addressing it. When you spend the whole day watching markets and the way price action for a currency is moving, then addressing it with the whole name is time-consuming.
Therefore, a currency short form appeared. Moreover, these short form is recognized worldwide and it is the basis of the Forex dashboard.
There is also a special language traders developed. This refers to the most popular currencies and to the direction the market is moving.
Having said that, the Great Britain Pound is the GBP, the Canadian Dollar is the CAD, the Australian Dollar is the AUD, the Japanese Yen is the JPY, the New Zealand Dollar is the NZD, and so on. If you open any Forex trading platform, you’ll find out that currency pairs are paired with one another based on their acronyms.
A currency pair is quoted like AUDUSD, meaning it will show the values of the Australian Dollar and the United States Dollar. Such a currency pair will move based on the differences between the two economies it represents: the Australian and the United States economies.
The evolution of the two economies is monitored by their respective central banks: The Reserve Bank of Australia (RBA) and the Federal Reserve of the United States (FED). When an economy is improving/growing, the central bank will react by raising the rates.
This is bullish for the respective currency. On the other hand, when an economy is stalling or moves into recession, the central bank will ease the monetary policy and cut rates. Consequently, the currency will lose its value.
There are other ways to address a currency pair, though. This is more part of the jargon language Forex traders are using when talking about things that happen in the market.
The GBPUSD pair is called “cable”. Therefore, if the cable is bullish and someone wants to buy cable, it means the GBPUSD is expected to move to the upside.
The Canadian Dollar (CAD) is called “Lonnie”. A Lonnie pair is always strong related to the oil market, as oil and Lonnie enjoy a strong inverted correlation.
Moreover, the Australian Dollar (AUD) is called Aussie, and the most important Aussie pair is the AUDUSD pair. This is normal when you think of the fact that the U.S. Dollar (USD) is the world’s reserve currency.
In the same note, the New Zealand Dollar (NZD) is called the Kiwi dollar. The Kiwi dollar is influenced by the RBNZ (Reserve Bank of New Zealand) decisions to cut or hike the rates, and the most representative currency pair is the NZDUSD pair.
The list can go on, with different names for currencies and currency pairs, and it should be mentioned here that all currencies have a three-letter acronym. This name is worldwide recognized and now it is part of the whole financial system.
When buying or selling a currency pair, traders are going LONG or SHORT. Being LONG is a result of being HAWKISH on a currency, and DOVISH on another.
Hawkish or dovish statements are being published by central bankers regularly. A central bank or central banker cannot be LONG or SHORT as they are not supposed to trade currencies: they are only setting the monetary policy for a respective currency.
However, the statement of a central bank or central banker can be HAWKISH or DOVISH, namely BULLISH of BEARISH for a currency. These are just another examples of how market participants are using special language expressions to talk about the currency market.
The list can go on with more complicated terms, especially when it comes to monetary policy language.