How to Use Currencies to Trade the Commodity Selloff

Source: olf.no

Norwegian Oil Rig

Crude oil got hammered last week. Here's how to trade that move using currencies.

That was quite a week for crude oil, wasn't it? If you were long crude, you were feeling some pain. You might want to try using currencies to trade on commodity moves.

"There's a number of currencies out there where the underlying economies are big commodity exporters," says Rebecca Patterson, chief markets strategist for J.P. Morgan Asset Management. "If you want to play a commodity, take a look at the country. If they're a big exporter of a commodity, there might be a currency trade there that's more liquid and therefore cheaper to do."

Patterson has been taking a look at the currencies of oil exporters, she told CNBC's Scott Wapner, and she sees potential in the Norwegian krone.

Norway is a big oil exporter, Patterson points out, and she expects the central bank to raise interest rates again in September. Meanwhile, the country has a significant current account surplus, which "makes it a safe currency in a scary world," she says.

That said, Patterson thinks oil prices could fall further, so she recommends waiting for a dip to buy the Norwegian krone against the dollar. She wants to buy the krone around 5.6, put a stop loss at 5.73, and look for a move to 5.3.

You can watch the discussion in the video clip, starting at 8:10.

Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm.

"Money in Motion Currency Trading" repeats on Saturdays at 7pm.