3 More Exotic Currencies To Add to Your Trading Basket

Two years ago I highlighted the Singaporean Dollar (SGD), Indian Rupee (IDR), and Brazilian Real (BRL) as the exotic currencies to watch out for. Check out this new batch of currencies that could spice up your trading!

Danish Krone (DKK)

Common currency pairs: EUR/DKK, USD/DKK

Central Bank: Danmarks Nationalbank

Why you should trade it:

Although the Danish Krone is officially pegged to the euro, it has no trouble attracting investor demand. Denmark is an AAA-rated country, after all. In fact, a World Gold Council report pointed out that the krone is becoming popular as a currency reserve for major central banks right along with the AUD, CAD, and CHF. This is probably why USD/DKK and EUR/DKK made it to the Bank of England (BOE) and the New York Fed's lists for the top most actively traded currency pairs in late 2012.

In 2012 the krone's popularity among central banks as well as the flight from the euro prompted Denmark's central bank to use negative interest rates to counter the influx of capital. But now that appetite for the euro has somewhat improved, the central bank is slowly easing up on its currency interventions. It had stopped buying krone in February, a first in five months, and said that the cost of keeping its currency peg is getting expensive.

Mexican Peso (MXN)

Common currency pair: USD/MXN

Central Bank: Banco de México

Why you should trade it:

 A few weeks ago Mexico's central bank cut its interest rates by 50 basis points for the first time in nearly four years. It didn't stop investors from buying the peso though, as the rate cut was seen as a nod to the central bank's success in combating high inflation. USD/MXN even reached its 18-month low last week thanks to optimism for Mexico's government reforms and potential credit rating upgrades.

Will the Mexican central bank use other tools to combat the peso's strength? Not in the near future. Yesterday Deputy Finance Minister Fernando Aportela said that Mexico's currency commission has not discussed any new measures to slow the peso's strength.
So for the next couple of days we could see USD/MXN, the New York Fed's sixth most actively traded currency pair in the late 2012, trade on U.S. economic reports. The U.S. gets 78% of Mexico's exports so be extra vigilant on any consumer-related reports!

Hong Kong Dollar (HKD)

Common currency pair: USD/HKD

Central Bank: Hong Kong Monetary Authority

Why you should trade it:

 If wild price action isn't your cup of tea, then you should take a look at the Hong Kong dollar. The Hong Kong Monetary Authority, Hong Kong's de facto central bank, has pegged its currency to the Greenback and has kept USD/HKD between the 7.7500-7.8500 range since May 2005.

Interestingly enough, the HKD is still one of the most actively traded currencies in the forex block. The Bank of International Settlements' (BIS) triennial report in 2010 revealed USD/HKD as the 9th most actively traded currency pair in the world. Meanwhile, a Bank of Japan (BOJ) report in January showed HKD as the most actively traded emerging market currency. A definite plus to those who are looking to trade liquid currencies!