Commodity Currencies Decouple from Commodities

Commodities are getting a demotion from foreign-exchange strategists.

Banks from JPMorgan Chase & Co. to Citigroup Inc. are reducing the weighting given to exports in their currency forecasting models as policy makers tighten their grip on financial markets. Traditional commodity currencies, such as those of Canada, Australia, New Zealand and Norway, have become decoupled from exports by the most in as much as 13 years.

“The breakdown in correlations has been significant,” Niall O’Connor, an analyst at JPMorgan in New York who specializes in tracking trends in trading patterns, said by phone on June 25. “It’s central-bank talk that’s really become the catalyst for price action.”

From the U.S. Federal Reserve to the European Central Bank and Bank of Japan, policy makers are showing little appetite to stop stimulating their economies after the World Bank lowered its global economic growth forecast last month. The delinking of commodity prices and the currencies of nations that rely heavily on exporting raw materials is upending one of the most established relationships in global markets.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza