As a forex trader, you have the opportunity to trade hundreds of different currency pairs on the market. Some of these pairs tend to be highly volatile because of the frequent fluctuations in the base and quote currencies. However, some currencies are known as safe-haven assets due to their relative stability and high trading volumes. Examples of these major currencies include the US dollar, Swiss franc, and Japanese yen.

 

It is a common assumption that the most sought-after and easily exchangeable currencies, such as Major currencies, indicate the strongest ones. However, this is not always true. The currencies of certain countries located in the GCC region have appeared as the strongest currencies globally, with the Kuwaiti dinar (KWD) being the most dominant.

 

The USD/KWD pair has been trading well above the 3.0000 mark for two decades, solidifying its position as the strongest currency globally.

 

If you want to trade the strong Kuwaiti dinar, read this article to understand why it is strong and how to trade it.

 

How did the Kuwaiti Dinar become the strongest forex currency in the world?

  • The Kuwaiti dinar (KWD) is Kuwait’s national currency, which was established in 1961.
  • Kuwaiti dinar (KWD) is the world’s most valuable currency, with 1 KWD worth over 3.2 USD.
  • Kuwait exports more than 1.8 million barrels of oil per day as an oil-rich country.
  • The government has been using oil revenue to develop the country’s public and private sectors as well as fund various infrastructure projects.
  • The stable internal political climate in Kuwait helps maintain the strength of the Kuwaiti dinar due to the high demand for oil.
  • The composition of the basket of currencies to which the KWD has been pegged since 2007 is undisclosed.
  • Due to its high value, the Kuwaiti dinar has low volatility and is not typically traded for short-term profits.

 

How is the strongest forex currency performing against the US dollar?

The USD is the primary currency used to exchange oil worldwide, with the term ‘petrodollar’ coined after the US-Saudi agreement in 1945.

It is crucial to note how the Kuwaiti currency has performed against the US dollar in the long term, given the heavy reliance of the Kuwaiti economy on oil exports.

 

The value of the Dinar currency has decreased in comparison to the US Dollar recently, but it still maintains a high rate of over 3.0000 consistently. This is primarily due to the significant revenues generated by oil sales. Although oil-rich countries tend to experience political and civil unrest and economic instability, their reliance on hydrocarbons can cause neglect of other important sectors of the economy, leading to slow economic growth or unsustainable growth.

 

The government of Kuwait has been investing its oil revenues into essential infrastructure and supporting its private sector, resulting in significant growth in GDP. As of 2022, the GDP stands at $186.5 billion. This sustained development has further strengthened the dinar. However, the dinar has recently started to lose value against the dollar due to the Federal Reserve’s aggressive monetary policy and interest rate hikes.

 

What are the advised currency pairs to trade in terms of Kuwait Dinar (KWD)?

Traders who aim to make significant short-term profits may find that the Kuwaiti dinar is not suitable for their objectives. The currency rarely displays sudden price movements and typically reflects shifts in global economic trends, particularly those related to the export of hydrocarbons. Nevertheless, traders with a longer-term perspective may still find the currency pairs of KWD and major trading partners of interest.

Kuwaiti Dinar and the US Dollar – KWD/USD

The pairing of the Kuwaiti Dinar with the US dollar holds significant importance as the dollar is the primary currency used for trading hydrocarbons globally. The dinar has a history of consistently performing well in comparison to the world reserve currency and has maintained a value above the 3.0000 mark for several decades.

Traders may be interested in this currency pair as it reflects significant movements in global oil and gas markets.

KWD was pegged to the USD from 2003 to 2007 and then pegged to a basket of currencies with an undisclosed weighting, but the USD is likely to have the highest weighting.

The US exported $2.4 billion worth of oil and natural gas to Kuwait in 2020, making up 8.5% of the country’s total exports.

Kuwaiti Dinar and the Chinese Yuan – KWD/CNY

China is considered the largest trading partner of Kuwait, accounting for 17.4% of the country’s exports, which amounts to $4.94 billion in 2020. As the second-largest economy in the world, China has a high demand for hydrocarbon energy, which has a significant impact on the KWD/CNY exchange rate. 

 

The KWD/CNY pair is known for its high volatility. It is primarily useful for mid-to-long-term investments. The pair of Dinar/Yuan has managed to stay above the 20.0000 mark for over two decades, but it has experienced a decline since the 2008 financial crisis. China’s economic growth has strengthened the yuan, which is one of the reasons for the decline in the KWD/CNY pair.

 

As China’s economy faces challenges from the real estate market and growth slows down, there is a possibility of the KWD regaining momentum against the yuan. However, this prospect heavily depends on the global hydrocarbon market, much like other pairs involving the Kuwaiti dinar.

 

Kuwaiti Dinar and the Japanese Yen – KWD/JPY

Japan exported $1.67 billion worth of goods to Kuwait in 2020, making up 5.9% of the Gulf state’s total imports.

The KWD/JPY currency pair has been consistently increasing for more than a decade. This is mainly due to Japan’s deflationary environment and the Bank of Japan’s continuous efforts to increase the money supply, thereby reducing the value of the yen and combating deflation.

Despite the challenges posed by the COVID-19 pandemic and the Russo-Ukrainian war, the Kuwaiti dinar has gained significant value against the Japanese yen in 2022. The KWD/JPY pair has gone above 400 basis points, which is the highest it has been since 2014. This means that the pair has returned a profit of over 60% since 2012, making it an excellent investment opportunity over the past decade.

 

Kuwaiti Dinar and the Saudi Rial – KWD/SAR

Saudi Arabia is one of the world’s largest hydrocarbon exporters and is also one of Kuwait’s major trading partners, with 5.8% of Kuwaiti exports going to Saudi Arabia. However, Saudi Arabia is also a competitor of Kuwait, as both OPEC countries export a combined 8.5 million barrels of oil per day.

The KWD/SAR currency pair has been trading above 10.0000 for decades, with the Saudi riyal regaining ground since Covid-19.

It is worth noting that the Saudi riyal has a fixed exchange rate of 3.75 with the US dollar, resulting in a significant correlation between the KWD/USD and KWD/SAR pairs.

 

Kuwaiti Dinar and the Emirati Dirhams – KWD/AED

The United Arab Emirates and Kuwait have strong economic relations, both being rich in oil. They are important trade partners, with Kuwait exporting goods worth $2.33 billion to the UAE in 2020. This amount represents 8.25% of Kuwait’s total exports for the year.

The UAE dirham is a currency that, like the KWD, is pegged to the US dollar. This means that the global hydrocarbon industry and the strength of the US dollar in the global economy influence the KWD/AED currency pair. The two countries share a stable political environment, considerably lower volatility than other currency pairs, the KWD/AED currency pair has been traded above the 10.0000 mark for decades, in the global forex market.

 

What are the alternatives to the Kuwaiti dinar?

Traders who are interested in finding currencies that are more valuable than the major currencies, such as USD, EUR, GBP, CHF, and JPY, may want to look into countries from the Persian Gulf. However, it is important to keep in mind that major world currencies have the highest liquidity and tightest spreads. Most oil-rich countries have their official currencies pegged to the US dollar because they rely on hydrocarbon exports. If you are a trader who wants to explore alternatives to the Kuwaiti dinar, here are three options that you might find beneficial for trading:

  • Bahraini Dinar (BHD) –Bahrain, a country located in the Gulf of Persia, uses Bahraini dinar (BHD) as its official currency. It is pegged to the US dollar at a fixed rate of 2.659:1. Bahrain is a significant exporter of hydrocarbons, with oil and gas exports valued at $3.19 billion in 2020. Despite its relatively modest economy, Bahrain’s GDP stands at just over $38 billion. The pegging of BHD to USD makes it the second most valuable currency in the world after the Kuwaiti dinar.
  • Jordanian Dinar (JOD) – Jordan’s official currency is the Jordanian dinar, which is pegged to the US dollar. Currently, one Jordanian dinar is worth 0.7090 US dollars. The Jordanian dinar’s stability, owing to its peg to the US dollar, makes it an attractive option for investment. However, this stability also means that there are limited opportunities for short-term trading.
  • Oman Rial (OMR) – Oman is a country located in the Persian Gulf region which heavily depends on oil and gas exports. To ensure stability, its currency, the Omani rial (OMR), is pegged to the US dollar at a fixed rate of 2.6008. Although this pegging mechanism ensures less volatility for OMR, it also presents trading opportunities for those using currencies such as the GBP, EUR, CAD, JPY, and CHF.

 

Main takeaways from the strongest Forex currency

  • The Kuwaiti dinar (KWD) trades at a rate of over 3.2 against the USD, making it the world’s most valuable currency.
  • Kuwait’s economy relies heavily on the export of oil and gas to its trading partners.
  • It is worth noting that several of Kuwait’s allies have chosen to peg their respective currencies to the US dollar in order to maintain stability.
  • The currencies of oil-rich countries are unattractive for short-term traders due to their low liquidity and high degree of stability.
  • Traders can choose BHD, JOD, or OMR instead of KWD as they are fixed to the dollar at a rate that makes them more valuable than the US currency.

FAQs on the strongest Forex currency

What is the strongest world currency?

The Kuwaiti dinar is currently the strongest and most valuable currency in the world. One Kuwaiti dinar is worth more than 3.2 US dollars, which makes the currency highly stable and limits opportunities for short-term traders.

Why is the Kuwaiti dinar so valuable?

Kuwait exports more than 1.6 million barrels of oil daily, which fuels its economic growth and stabilizes its currency.

Can I trade Kuwaiti dinar?

Trading the Kuwaiti dinar is a simple process that anyone can do. To get started, you’ll need to open an account with a reliable forex broker, complete the verification process, and fund your account. Once you’ve done that, you can select a currency pair with KWD as its base currency and begin trading. With the right strategy and approach, trading the Kuwaiti dinar can be a great way to diversify your investment portfolio and earn profits.

Which currency is most traded in forex?

The US Dollar is the most widely traded currency globally, and the EUR/USD pair is the most popular and liquid currency pair in the Forex market. Moreover, the USD is the primary reserve currency worldwide. It’s worth noting that all major currency pairs include one portion of the US Dollar as either a base or quote currency.