Disenchanted With the Dollar? Check Out Commodity Currency Gains

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Frustrated dollar bulls would have done better this month by switching to commodity currencies.

The Aussie, Norwegian krone and Canadian dollar are the best performers among 16 major peers in May with the exception of the runaway pound. A Bloomberg gauge of commodity prices has surged almost 9 percent since a 13-year low in March. The euro pared an advance against the greenback after Germany’s economy grew less than expected.

“Oil is starting to climb again and that’s giving strength to the so-called commodity currencies,” said Masato Yanagiya, head of foreign exchange and money trading at Sumitomo Mitsui Banking Corp. in New York. “Dollar topics aren’t really driving currency markets right now.”

Australia’s dollar was little changed at 79.72 U.S. cents as of 7:22 a.m. in London from Tuesday, when it climbed 1.1 percent. The krone appreciated 0.1 percent to 7.4761 per dollar after jumping 1.1 percent. Canada’s loonie was at C$1.2027 per U.S. dollar, following a 0.7 percent gain.

The dollar fell 0.1 to $1.1228 per euro, declining for a second day, and was little changed at 119.92 yen.

After crude oil approached a five-month high on Tuesday, the Aussie is up 0.8 percent versus the dollar this month, while the krone has strengthened 0.9 percent and the loonie 0.5 percent.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, has declined 0.2 percent in May to 1,163.04. The gauge slumped 3 percent in April, its first month of losses since June.

Biggest Export

While oil has recovered from as low as $42.03 per barrel on March 18, iron ore -- Australia’s biggest export earner -- has rallied to $62.88 per ton from $47.08 on April 2, the lowest in data compiled by Bloomberg starting in 2009.

“We’ve had a bounce in oil and some positive signs from iron ore,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. “Their attempts to form a base is supporting commodity currencies, which one can argue were oversold on those declines in commodity prices.”

Currencies from nations that depend on raw material exports were among the biggest losers against the dollar in the first three months of 2015. The Aussie slumped 7 percent, the krone 7.6 percent, and the loonie 8.4 percent. Bloomberg’s dollar index jumped 6.2 percent.

The dollar has struggled since then as investors pushed back predictions for when the Federal Reserve will raise interest rates as U.S. economic data has been mixed.

Rate Bets

Swaps traders see the Fed increasing its benchmark rate by about 65 basis points, or 0.65 percentage point, during the next 12 months, according to a Credit Suisse Group AG index. Bets declined to 49 basis points last month, as a Bloomberg gauge of whether U.S. economic data is beating or falling short of expectations dropped to a six-year low.

Economists predict growth in U.S. retail sales slowed to 0.2 percent in April from 0.9 percent the previous month, according to a Bloomberg survey.

“It’s important whether U.S. economic indicators start to recover in April after coming in weak due to the bad weather in the January-to-March period,” said Shinichiro Kadota, a foreign-exchange strategist at Barclays Plc in Tokyo. “A recovery would support the dollar, but if the figures continue to be weak, they would weigh on the dollar instead.”

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