What are the top 10 most traded currencies in the world?

What are the most traded currencies in the world?

1. US dollar (USD)
2. Euro (EUR)
3. Japanese yen (JPY)
4. Pound sterling (GBP)
5. Australian dollar (AUD)
6. Canadian dollar (CAD)
7. Swiss franc (CHF)
8. Chinese renminbi (CNH)
9. Hong Kong dollar (HKD)
10. New Zealand dollar (NZD)¹

US dollar (USD)

Issued by the Federal Reserve (Fed), the US dollar is the official currency of the United States. It is the number one most traded currency globally, accounting for a daily average volume of US$2.9 trillion.¹

There are several reasons for its popularity. Firstly, the US is the world’s largest economy and a powerhouse in international trade. Secondly, the US dollar is the world’s primary ‘reserve currency’, held by central and commercial banks for the purposes of international transactions and investment – estimated to make up nearly 63% of currency reserves by volume.³ And thirdly, many commodities are priced in dollars, including gold, oil and copper.

While the value of the dollar is primarily influenced by US economic performance and demand for commodities, its value can also be influenced by fluctuations in the economic performance of other countries that use the dollar – either officially or as their de facto currency. These countries include Ecuador, Panama and El Salvador, among others.

Markets to watch: EUR/USD, GBP/USD and USD/JPY

Euro (EUR)

The euro is the official currency of the European Union (EU) and the second most traded globally, accounting for a daily average volume of nearly US$1.1 trillion.¹ It is issued by the European Central Bank (ECB).

The popularity of the euro is primarily down to the scale and economic clout of the area in which it is used – the eurozone. This currently comprises 19 of the 28 countries within the EU, but the bloc’s remaining members – except the UK and Denmark – are required to join in time under the Maastricht criteria. It is also the world’s second biggest reserve currency, estimated to make up roughly 20% of global reserves by volume.³

The euro’s value is strongly influenced by political and economic developments within the bloc. Events that can have an effect include ECB meeting announcements, gross domestic product (GDP) releases, employment data, national and EU-wide elections, among others.

Markets to watch: EUR/USD, EUR/JPY and EUR/GBP

Japanese yen (JPY)

The Japanese yen is the official currency of Japan and the third most traded globally, accounting for a daily average volume of US$554 billion.¹ It is also the third biggest reserve currency – estimated to make up around 4.9% of global currency reserves.3 It is issued by the Bank of Japan (BoJ).

The yen’s value is highly dependent on the strength of Japan’s economy, particularly its manufacturing sector which is responsible for key exports including vehicles, electronics, machine tools, ships and textiles. As the value of the yen often increases in line with demand for these products, many forex traders pay attention to economic releases. These can include the BoJ meeting announcement, GDP data, the index of industrial production, the Tankan survey, and unemployment numbers.

The strength of the Chinese renminbi can also have an effect as China is a key competitor in manufactured goods. A weak renminbi can make China’s exports more competitive internationally, reducing demand for Japanese products and, in turn, the yen. Finally, it is worth noting that the cost of oil can play an important role in determining the yen’s value. This is because Japan is a major importer of oil and high prices can weigh heavily on its economy.

Markets to watch: USD/JPY and EUR/JPY

The pound sterling (GBP)

The pound sterling is the official currency of the United Kingdom and its territories, and the fourth most traded globally at a daily average volume of nearly US$422 billion.¹ It is also the fourth biggest reserve currency – estimated to account for 4.5% of global reserves by value.³

The pound’s value depends largely on the UK’s economic performance, with inflation rate data, the Bank of England’s (BoE's) monetary policies, GDP and employment reports all likely to have an effect. In recent years, its value has also been affected by the UK’s changing relationship with Europe: the country voted to leave the EU in a referendum held on 23 June 2016. Brexit is currently scheduled for 29 March 2019, with the nature of the country’s final relationship with the EU – particularly its future trading relationship – likely to impact on the pound in the years to come.

Markets to watch: GBP/USD and EUR/GBP

Australian dollar (AUD)

The Australian dollar is the official currency of the Commonwealth of Australia and the fifth most traded globally, accounting for a daily average volume of US$223 billion.¹ The currency is the sixth most commonly held reserve currency – estimated to account for 1.8% of global reserves by value.³ It is issued by the Reserve Bank of Australia (RBA).

The Australian dollar’s value is strongly influenced by commodity prices and the ‘terms of trade’ – the ratio between the prices of its imports and exports. Australia is a major exporter of coal, iron and copper, among other mined commodities, and a major importer of oil – so shifts in the trading volumes and prices of these commodities can impact AUD.

The currency’s value also depends on the size of the country’s foreign liabilities, with an increase here likely to result in a fall in the value of AUD against major trading partners’ currencies.

Additionally, any difference between the RBA’s interest rates and those of other central banks can have an effect, as money is likely to flow into countries with higher interest rates and away from countries with lower interest rates.

Market to watch: AUD/USD

Canadian dollar (CAD)

The Canadian dollar is the official currency of Canada and the sixth most traded globally, accounting for a daily average volume of US$166 billion.¹ The currency is the fifth most commonly held reserve currency, at 2.02% of global reserves by value.³ It is issued by the Bank of Canada (BoC).

Much like Australia, Canada is rich in natural resources and a major exporter of commodities, which means their prices can be a critical factor in determining CAD’s value. The currency is likely to rise in value if commodity prices increase and fall in value if they decrease.

Canada’s major trading partner is the US, which accounts for more than 75% of all exports and 50% of its imports.⁴ As a result, Canada’s economy and the value of the Canadian dollar are particularly sensitive to changes in US economic performance and the value of the US dollar. Differences between the interest rates offered by the two countries can also play an important role in determining CAD’s value, with the currency likely to appreciate against the dollar if the BoC’s rates are higher than the Fed’s, and vice versa.

Market to watch: USD/CAD

Swiss franc (CHF)

The Swiss franc is the official currency of Switzerland and the seventh most traded globally, accounting for a daily average volume of US$164 billion.¹ It is also the eighth most commonly held reserve currency, at 0.18% of global reserves by value. It is issued by the Swiss National Bank (SNB).

The country’s reputation for financial services and banking secrecy, relatively sound monetary policies and low levels of debt have made the Swiss franc a ‘safe-haven’ currency. This means it tends to rise in times of global economic uncertainty as money pours into the country.

However, roughly half of Swiss exports are purchased by countries within the eurozone, so the currency’s value is also strongly influenced by the strength of the euro and the economic performance of countries within this region.

Markets to watch: EUR/CHF and USD/CHF

Chinese renminbi (CNH)

The Chinese renminbi – sometimes referred to colloquially as the ‘yuan’ – is the official currency of the People’s Republic of China and the eighth most traded globally, accounting for a daily average volume of US$142 billion.¹ Despite being an emerging market currency, it is also the seventh most held reserve currency – estimated to account for 1.23% of global reserves. It is issued by the People’s Bank of China (PBoC).

For many years, the renminbi was pegged against the US dollar. But the PBoC recently loosened its monetary policy to allow it to float within a narrow band against a basket of major currencies – apparently with a view to letting it float freely in the future. However, many economists believe China has benefitted from a weak renminbi, which has made its exports more competitive over the last few decades and enabled it to maintain a trade surplus with many other countries, and are therefore sceptical of its claims to be targeting a free-floating renminbi.

As China is a major exporter of commodities and manufactured goods, the value of the renminbi depends heavily on the country’s terms of trade, particularly with major trading partners such as the US and Europe. As a result, Trump’s trade war and its effects on US-China relations and international trade in general could have a big effect on the renminbi in the coming months and years.

Markets to watch: USD/CNH, CNH/JPY, EUR/CNH and GBP/CNH

Hong Kong dollar (HKD)

The Hong Kong dollar is the official currency of Hong Kong and the ninth most traded globally, accounting for a daily average volume of US$117 billion.¹ Unlike many of the other currencies on this list, HKD is not a major reserve currency.

It is issued by the Hong Kong Monetary Authority (HKMA) in HKD$10 notes, while all other denominations are issued by three authorized banks – The Hongkong and Shanghai Banking Corporation (HSBC), Standard Chartered Bank and Bank of China. Its exchange rate is fixed at around HK$7.80 to US$1, with the three authorized banks having to deposit dollars with the HKMA when they issue bank notes to keep its price close to this level.

Turnover in HKD doubled between April 2016 and April 2019, taking the currency from 13^th in the global rankings to ninth. This increase in trading volume is likely the result of the uncertainty surrounding the political situation in Hong Kong, which has increased the volatility of HKD pairs and created opportunities for profit.

Market to watch: USD/HKD

New Zealand dollar (NZD)

The New Zealand dollar is the official currency of New Zealand and the tenth most traded globally, accounting for a daily average volume of US$68 billion. Like the krona, it is not a major reserve currency. It is issued by the Reserve Bank of New Zealand.

The value of NZD is strongly dependent on New Zealand’s trading relationships, the value of the country’s imports and exports, and the strength of trading partners’ currencies. New Zealand’s key trading partners are China and Australia. Its main exports are agricultural products – particularly dairy and meat products – while its main imports are oil, machinery and cars.

The monetary policies of the Reserve Bank of New Zealand can also have an effect, particularly the interest rates offered and how these compare to those offered by other banks globally. The currency is likely to appreciate when interest rates are relatively high compared to those on offer in other countries and depreciate when they are relatively low.

Markets to watch: NZD/USD, EUR/NZD and NZD/JPY

Sources

¹Bank for International Settlements (BIS), 2019
²Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
³International Monetary Fund (IMF), 2018
⁴Central Intelligence Agency (CIA), 2018