The U.S. dollar is the most traded currency in the world. But against which currencies does the dollar trade the most? Which are the most traded currency pairs?
The foreign exchange (forex, for short) is the most liquid market in the world. Unlike equities, currencies and currency derivatives are traded by several agents. It’s not only about you and me, but also about large corporations, governments and central banks. On average, $5 trillion are traded each day on forex.
There’s no doubt the U.S. dollar is the most traded currency. With the U.S. economy being the largest in the world and given the importance of the U.S. Federal Reserve, the dollar has a status no other currency has. Still, like a coin, there’s always two sides. The dollar must be traded against other currencies. Thus, the question to ask is: Which currencies does the dollar trade against the most? And eventually, there may be some pairs that are heavily traded and don’t involve the U.S. dollar at all.
The best way to find answers is by looking at official data from the Bank of International Settlements (BIS), available on its Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Market, last issued in December 2016. Let’s take a look:
The top 10 currency pairs share 72.5% of the total market, which is significant. As expected, the U.S. dollar takes part on almost all of these 10 pairs. In fact, there is only one pair without the dollar in the above list: EUR/GBP.
The most important currency pair is the EUR/USD (aka Fiber). On average, this pair trades $1.17 trillion per day. With the U.S. and the Euro area being the largest economies in the world and given the importance of the respective central banks, the EUR/USD could only be the most traded currency pair. The next pair in the list is the USD/JPY, (aka Ninja). The third in the list is the pair GBP/USD (aka Cable). The fourth and fifth spots belong to the Australian dollar and Canadian dollar, both heavily dependent on the evolution of commodity prices. Investors often use the AUD/USD (aka Aussie) and USD/CAD (aka Loonie) as an indirect way of getting exposure to the commodities market. The AUD is highly correlated with mining, while the CAD is highly correlated with oil.
The list is completed with the pairs USD/CNY, USD/CHF, EUR/GBP, USD/MXN, and USD/SGD. Retail traders often trade USD/CHF (Swissy) and EUR/GBP (Chunnel) but I guess trades involving the Mexican peso and the Chinese yuan are a lot less common in the retail market. There are other currency pairs that, despite not being part of the above top ten, are commonly traded in retail. That’s the case with NZD/USD (aka Kiwi) and EUR/JPY (aka Yuppy).