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Foreign Exchange

FX: The complexities of commodity-linked currencies

Macro and monetary policy factors are affecting some currencies more than traditional commodity triggers.

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Higher commodity prices are generally good news for the likes of the Canadian dollar, Russian rouble and Australian dollar, but other factors – most notably central bank monetary policy – have weighed on the strength of these currencies during the past 12 months.

A number of commodity-linked currencies have a high correlation to crude oil in particular, and with the wider basket of commodities they track having been subdued during the past year, both AUD and CAD have remained relatively weak and to the bottom end of recent ranges.

During the period of weakening crude oil prices in the final quarter of 2018, the Australian and Canadian dollars both experienced double-digit falls.

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John Goldie,
Argentex

Argentex FX dealer John Goldie observes that other commodities relevant to these currencies – such as the agricultural basket for AUD – have had varying degrees of volatility and therefore a less notable impact.

“Even the recent explosions in demand for iron ore and gold – of which Australia is a large producer – have had a lesser impact than crude oil, where the uptick in prices at the start of this year produced a bounce for CAD,” he says.




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