The 10 most volatile currency pairs

According to research in South Africa, the most volatile currency pairs often offer enticing predictions for profit because their price movements can be more dramatic than less volatile currency pairs. However, while increased volatility can provide more room to realize a profit, it can also increase a trader’s risk exposure.

In general, volatile pairs are affected by the same drivers as their less volatile counterparts, which can include interest rate differentials, geopolitics, the perceived economic strength of each currency’s issuing country, and the value of those nations’ imports and exports. Traders must remember that volatile currency pairs often have lower liquidity levels than their less volatile counterparts. A well thought-out trading plan and risk management strategy is key.

Currency pairs differ in terms of volatility levels and traders may decide to trade highly volatile currency pairs or not to trade them at all. Smaller price movements indicate lower volatility while higher or frequent movements mean higher volatility.

The price movement of the currency pair is usually considered in terms of pips, so if a currency pair moves an average of 200 pips over a given period, it will be more volatile than a pair that moves 20 pips over the same period. A volatility level is influenced by major economic data releases, political events, liquidity or simple supply and demand.

The volatility of a currency pair can change over time as factors change.

Exotic currency pairs are considered more volatile due to limited liquidity and unstable economic conditions in emerging economies.

Volatility explained

Everyone knows that prices in shops are not static and that they can rise or fall at any time.

Often shoppers may enter a store and see that the price of, for example, chocolate has risen, only to return the next day to find that it has risen again – why does the price rise so quickly?

In simple terms, volatility is the rate at which the price of chocolate can rise and can be measured both as a percentage and in monetary units. Volatility is sometimes associated with price fluctuations or the amplitude of price movements.

Volatility is considered by currency traders as one of the most important information indicators for decisions on opening or closing currency positions. Volatility plays a very crucial role in risk assessment for financiers. When traders say that the market is highly volatile, this means that exchange rates start to change drastically during a trading period. For example, if it is too high, they try to reduce the volume of their transactions. At first glance, volatility seems like a bad thing, but it’s actually not, the higher it is, the greater the potential earnings (and losses) in the Forex market.

There are two types of volatility:

Historical volatility represents the standard deviation of asset values over a given time frame, calculated from historical prices.

Expected volatility is calculated based on current prices under the assumption that an asset’s market price reflects expected risks.

List of volatile currency pairs

AUD/JPY
NZD/JPY
GBP/EUR
CAD/JPY
GBP/AUD
USD/ZAR
USD/KRW
USD/BRL
USD/TRY
USD/MXN

AUD/JPY

AUD/JPY represents a currency pair consisting of the Australian dollar against the Japanese yen.

The currency pair has high volatility due to the inverse relationship between the Australian dollar and the Japanese yen. The Australian dollar is a commodity currency, meaning its price is linked to the price and volume of Australia’s exports, particularly minerals, metals and more. In contrast, the Japanese yen is generally considered a safe haven currency, meaning that investors often turn to it in times of economic adversity.

As a result, the price movements for this pair can be very dramatic depending on the current global economic outlook.

NZD/JPY

NZD/JPY represents a currency pair comprising the New Zealand dollar against the Japanese yen and much like the Australian dollar, the New Zealand dollar is a commodity currency with its value closely tied to the price of New Zealand’s agricultural exports, making this currency pair particularly volatile. In particular, the price of milk powder is considered to have a major impact on the New Zealand dollar.

Top exports in New Zealand include: dairy products, eggs, meat, wood and honey and as a result, any change in the price in any of these markets will affect the value of the NZD against the Japanese Yen and other currencies.

GBP/EUR

GBP/EUR represents a currency pair consisting of the British pound against the euro and after Brexit this pair has seen constant volatility. Volatility in this currency pair may decrease if a withdrawal agreement is reached, but so far there have been no signs of agreement.

CAD/JPY

CAD/JPY represents a currency pair consisting of the Canadian dollar and the Japanese yen. The yen is seen as a safe haven and the Canadian dollar is a commodity currency, with its value in the foreign exchange market strongly influenced by the price of oil in the commodity market.

GBP/AUD

The GBP/AUD pair consists of the British pound and the Australian dollar. Historically, these two currencies have been linked, mainly because Australia is part of the Commonwealth of Nations. But as a commodity currency – the AUD price is strongly linked to the value of Australia’s exports.

One effect of the US trade war with China is that Australian imports into Chinese markets have declined, resulting in currency pairs containing AUD seeing increased volatility since the start of the trade war.

USD/ZAR

USD/ZAR pits the US dollar against the South African rand and the volatility of this pair is heavily influenced by the price of gold, as gold is one of South Africa’s main exports and is priced in US dollars on the world market. If the price of gold rises, the price of the dollar is likely to increase against the ZAR.

USD/KRW

USD/KRW represents a currency pair consisting of the US dollar against the South Korean won. The South Korean won, in its current form, was formed after World War II. After a separation in which the southern part of the country allied with America and the northern part allied with Russia, the economic differences between capitalism and communism became apparent.

Currently, this currency pair is trading at around 1000 won against one US dollar.

USD/BRL

The USD/BRL pair is the US dollar against the Brazilian real, a pair that often has frequent movements, which in turn creates opportunities for traders who focus on day trading or even scalping.

USD/TRY

USD/TRY consists of the US dollar and the Turkish lira. The Turkish lira has been very volatile since 2016 following a failed coup attempt and the subsequent purges that have taken place in Turkish society, and politics in Turkey has been very unstable since then.

USD/MXN

USD/MXN is the US dollar against the Mexican peso. Tensions have increased between these two countries after US President Donald Trump won the 2016 presidential election. The current 20% tariff rate has already led to a significant increase in the volatility of this pair.

What is the difference between high volatility and low volatility currency pairs?

Currencies with high volatility will normally move more points in a given period than currencies with low volatility and this will lead to an increased risk in high volatility currency pairs. High volatility currencies are more likely to slide and due to high volatility currency pairs making bigger moves, traders should determine the right position size to take when trading them.

What are the least volatile currency pairs?

The least volatile currency pairs are usually majors and can include EUR USD, USD/JPY, GBP/USD and USD/CHF.

How to trade Forex volatility

There are 5 simple steps to help traders get started in trading volatility in forex:

Research the currency pairs to be traded

Performs analysis on that currency pair (technical and fundamental).

Choose a currency trading strategy

Create an account and deposit money

Open, monitor and close a first position

According to research in South Africa, the foreign exchange market is one of the largest and most active markets in the world. In layman’s terms, trading in the forex market basically means making money by buying or short selling one or more currency pairs. Using various technical analysis indicators, fundamental analysis or a combination of both, traders evaluate the future movement of one currency in relation to another.

Technically, forex trading is about knowing what to trade, and when it comes to the active trading of currency pairings, volatility is an important part of most strategies. Whether traders are interested in driving profit from hypothetical endeavors or hedging financial risk, a currency’s inherent volatility is an aspect of its behavior that must be accounted for.

Volatility is an important consideration in everything from predicting weather patterns to the project’s future price action for trade.

Stable and volatile currencies

Although volatility patterns can change at any time, some currencies have gained a reputation for showing greater stability over time – including:

Norwegian krone
Singapore dollar
New Zealand dollars
Hong Kong dollar
Swiss franc

The governments backing these currencies have developed a reputation for maintaining sound public accounts and limited intrusion into market affairs. There are also major heavyweight currencies that are considered to maintain general long-term stability, including…

The dollar
Euro
British pound
Chinese renminbi
Japanese yen

Key factors affecting volatility

Many factors influence the market and affect its volatility including:

Volatile currency pairs follow the technical areas of forex trading, such as price patterns, resistance levels, support, etc.

Traders need to keep up to date with all the latest forex news, currency pair prices and analysis.

All types of data releases can affect the volatility of currency pairs.

Technical analysis helps traders measure volatility.

About the Viking

With Viking’s signals, you have a good chance of finding the winners and selling in time. There are many securities. With Viking’s autopilots or tables, you can sort out the most interesting ETFs, stocks, options, warrants, funds, and so on. Vikingen is one of Sweden’s oldest equity research programs.

Click here to see what Vikingen offers: Detailed comparison – Stock market program for those who want to get even richer (vikingen.se)