The recent fall in the surging commodity prices hasn’t yet triggered any traditional responses in currencies and bonds.
Different from the commodity rallies in 2008 and 2011, the recent retreat in prices saw yields on Treasuries and currencies of major exporters like Australia have barely budged. Similarly, inflation expectations have also disconnected from the moves in raw materials.
According to Kerry Craig, global market strategist at JPMorgan Asset Management, the big difference this time around is central bank policy. Record-low monetary policy is weighing down currencies that would have naturally risen in relation to rising commodity prices during the cycle.
The Aussie and Kiwi — two major commodity currencies whose prices are indisputable laggards as opposed to the soaring commodity consumptions by China’s booming economy. According to ZERO Markets’ Metatrader 4 platform, over the past three months, each currency has increased less than 0.5%. On the other hand, the Canadian dollar has surged by almost 5% as the central bank signaled the withdrawal of stimulus. the news sent US equities falling by the most in more than a month, with the Nasdaq 100 down 1.24% and the S&P 500 down 0.92% at the close. US 10-year Treasury yields fell by 5 points from a high of 1.59% to 1.54% intraday.
Despite the recent pullback in commodity prices, Howie Lee, an economist at Oversea-Chinese Banking Corp., said in a recent report that the record highs in metal prices are likely to be the beginning as green economy investment and Chinese demand should continue to keep copper and iron ore prices elevated.
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Key events this week (Economic Calendar):
- RBA minutes (Tuesday)
- Fed minutes (Wednesday)
- Australia employment data (Thursday)
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