Commodity Currencies Surprise With Pace of Drop as Dollar Rises

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The biggest victims of the dollar’s renewed strength have been the currencies of commodity-exporting nations.

The Australian, Canadian and New Zealand dollars along with Norway’s krone are the worst performers among developed-market currencies since mid-May, when the U.S. currency started its rebound. All four outpaced analysts’ expectations with the speed of their declines, dropping to within 1 cent of median year-end forecasts or weakening beyond them. A gauge of the U.S. currency climbed to the highest since March on Thursday after the Federal Reserve moved a step closer to raising interest rates.

“The weakness in commodity prices has hurt these currencies compounded by central banks of those countries,” said Keng Goh, a foreign-exchange strategist at Royal Bank of Canada in London. “The fall in Chinese equities which hurt the demand for commodities and the fact the Fed will likely raise rates in September, all these combined have hit commodity currencies harder.”

The kiwi is the biggest loser, tumbling 12 percent since mid-May to 65.55 U.S. cents at 6:41 a.m. New York time. It fell 0.7 percent Friday as a measure of New Zealand’s business confidence unexpectedly slumped to a six-year low. The country’s central bank last week cut interest rates for the second time since June 10.

The Aussie and the Norwegian krone both slid about 10 percent since May 15 to 72.56 U.S. cents and 8.19 per dollar. The loonie, as Canada’s currency is known for the image of the aquatic bird on the C$1 coin, fell 8 percent to C$1.3037 per dollar.

Record High

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 of its major peers, has gained 5 percent over the period, reaching the highest since March, the same month it touched a record in data going back to 2004.

The measure rose 2.5 percent this month, the most since January.

A Bloomberg gauge of commodity prices has dropped 10 percent in July, its worst month since September 2011.

Fed funds futures show a 50 percent probability of a September rate increase, and 77 percent chance of one by year-end.

“As this is not fully priced in by financial markets, we maintain our view that the U.S. dollar strength will persist in the coming months” Roy Teo, a currency strategist at ABN Amro Group NV in Singapore, wrote in a note to clients.

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