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Commodity currencies: ready to benefit from stagflation?

05:00, 30 June 2022

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The Australian dollar has a diverse exposure to global commodity prices – Photo: Laura Reid

While turbulence and risk aversion in global markets has seen investors flocking to the dollar (DXY), sending it on a bull run, the same forces have prevented soaring commodity prices since the start of the year from boosting so-called commodity currencies. 

As the name suggests, these currencies tend to move alongside commodity prices, since their home countries have a high economic reliance on the export of certain goods. 

The Australian dollar (AUD), a key exporter of iron ore, coal, gas, gold and more, has climbed against currencies struggling with a weak economic outlook such as the pound, with the UK forecasting a coming recession.

GBP/AUD exchange rate


However, other commodity currencies – including the New Zealand dollar (NZD), and strongly oil-linked Canadian dollar (CAD) and the Norwegian krone (NOK) – have given up some of the gains they made following the invasion of Ukraine. NOK, for example, has fallen against the euro (EUR) since the start of the year, from 0.1 to 0.097. 

The commodity currencies are also high-beta currencies, meaning they are sensitive to risk appetite. Global equities have taken a downturn this year, with the S&P 500 down 20%, the Nasdaq down 30%, and the FTSE 100 down a more modest 4.3%. Hong Kong's Hang Seng index, India's Nifty 50 and Japan's Nikkei 225 are also down. 

Commodity currencies are also being impacted by their own dynamics such as central bank interest rate rise plans and exposure to China and its economic outlook. 

Nonetheless, said analyst Piero Cingari: “In a world of stagflation, defined by growing inflationary pressures and sluggish economic growth, commodity currencies might provide efficient short-term hedges against the supply issues plaguing global commodity markets.” 

The World Bank recently said that the pandemic, followed by the Russian invasion of Ukraine, had compounded a global slowdown in economic growth amid elevated inflation, which had raised the risk of stagflation, with potentially harmful consequences for middle- and low-income economies.

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EUR/NOK exchange rate

Multicentric market

The commodity rally – described by some as the start of a supercycle – has seen the global commodity index (S&P GSCI) more than double in value and oil rise more than 500% from its April 2020 lows.


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+0.670% 1D Chg, %
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Spread 0.040

Threats to the dollar’s role as the world’s reserve currency may further increase over the medium and long term if an increasing number of other countries seek payment in local currencies for commodity exports, as Russia did for gas, explained Cingari. 

“As a result, in a more multicentric forex market that deviates from the dollar’s dominance, some commodity-linked currencies may acquire traction,” he said. 

Currency breakdown

While the Canadian dollar and the Norwegian krone are highly associated with oil prices, the Australian dollar provides more diverse exposure to global commodities, as Australia is both a metal and energy commodity exporter, Cingari added. 

The New Zealand dollar, on the other hand, benefits from agricultural commodity prices; while the South African rand (ZAR) tends to strengthen during metals’ expansion phases, but it is particularly vulnerable to global liquidity conditions and risk-taking mood.

The South African rand has slipped from 0.063 to 0.062 against the dollar (USD/ZAR) in the year to date, reversing gains it made to 0.068 in mid-April. 

USD/ZAR exchange rate


In a note earlier this week, analysts at ING said that most near-term FX moves remained strictly tied to global equity swings, highlighting the Norwegian krone and Canadian dollars' movement alongside losses and gains.

Consequently, they added, “periods of relative stabilisation in sentiment should allow CAD and NOK to emerge as key outperformers as they re-connect with their commodity and rates drivers.”

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