Forex traders need to consider various indicators to devise an effective strategy for their chosen currency pairs, and a crucial factor in strategy formulation is volatility. Recognizing which Forex pairs exhibit the most movement is essential for traders to refine their approach.
Understanding Volatility:
Volatility is a normal aspect of functioning markets and is neither inherently positive nor negative. It represents the frequency at which currency pairs undergo fluctuations. Traders gauge volatility by calculating the variance or standard deviation of price movements within a specific timeframe.
Causes of Volatility in the Forex Market:
Volatility in the Forex market is often triggered by new information, as traders rapidly adapt to economic data and other market-moving developments. Key factors contributing to volatility include interest rate differentials, geopolitical events, perceived economic strength, and fluctuations in imports and exports.
Most Volatile Forex Pairs:
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Identifying the most volatile currency pairs is challenging due to the ever-changing market conditions. However, the following pairs are frequently recognized for their high volatility:
AUD/JPY - Average daily pips move over the past ten weeks: 99.37 pips or 1.12% The Australian Dollar is a commodity currency, and Japan imports a lot of its various commodities. The inverse relationship creates ample trading opportunities, especially with volatile commodity prices.
AUD/USD - Average daily pips move over the past ten weeks: 67.14 pips or 1.01% Australia is a primary exporter of commodities, but these assets globally tend to be valued using the US Dollar. Therefore, US monetary policy can impact the Australian Dollar, creating added volatility.
CAD/JPY - Average daily pips move over the past ten weeks: 103.61 pips or 1.07% Canada is a leading oil and commodities exporter, with Japan being a net importer, creating a similar dynamic to the AUD/JPY but focused on oil price and supply.
NZD/JPY - Average daily pips move over the past ten weeks: 97.58 pips or 1.19% The New Zealand Dollar has a similar relationship to the Japanese Yen as Australia, but soft commodities are the most influential factor.
GBP/AUD - Average daily pips move over the past ten weeks: 142.02 pips or 0.78% Australia is part of the Commonwealth, linking both countries in various aspects. Commodity exports and the close links between Australia and China also impact this currency pair.
USD/MXN - Average daily pips move over the past ten weeks: 1,736.65 pips or 0.93% As close trading partners and stiff opponents in many markets, there is plenty of volatility in this currency pair, which also feels the impact of government policies like the 20% tariff on Mexican exports to the US.
USD/BRL - Average daily pips move over the past ten weeks: 591.78 pips or 1.13% Brazil is a leading emerging market and BRICS member, offering opportunities for aggressive traders trying to take advantage of average moves of 500+ pips daily.
USD/ZAR - Average daily pips move over the past ten weeks: 2,595.06 pips or 1.40% South Africa relies on its gold exports, priced in US Dollars, creating a close relationship and heavy pip movements driven by the emerging South African economy, also a BRICS member.
USD/JPY - Average daily pips move over the past ten weeks: 129.03 pips or 0.97% The Japanese Yen is a safe-haven currency and the only G10 economy with negative interest rates and a persistent deflationary problem versus inflation and rising interest rates is the US, offering a unique opportunity to ‘carry trade’.
EUR/USD - Average daily pips move over the past ten weeks: 78.31 pips or 0.73% While the EUR/USD is less volatile than other currency pairs that could complete the Top 10, like the USD/RUB, USD/TRY, or USD/ILS, it is the most liquid currency pair traded on the market, accounting for 28% of daily trading volumes with above-average volatility.
Noteworthy Points:
Bottom Line:
By using Forex volatility calculators, traders can identify the most volatile currency pairs, enabling them to establish appropriate take profit and stop loss levels and choose effective trading strategies.
