Will commodities drag down the commodity $?

Posted Wednesday, August 24, 2016 by
Skerdian Meta • 1 min read

The commodity prices have been declining since the 2008 financial crisis. It doesn´t take a genius to realize that the demand for commodities dampens during global economic crisis. A friend of mine who works in the physical metals industry has been holding on to a cargo of chrome he bought in late 2010s because the price is nearly half of what it used to be and doesn´t meet the purchase costs.  

Since then, it´s been an ongoing struggle; the demand from the largest importer of commodities and raw materials, China, has been declining. The latest customs data from China for the import of commodities in July shows the declining trend for all the commodities but copper and primary aluminum. 

That´s worrisome for the global economy, because it means that one of the three biggest markets/economies of the globe is slowing down. The commodity Dollars such as the NZD, AUD and CAD had a 30 pips tumble after the release but they are back up on their feet right now.

The decline in the commodity prices is not good news for the commodity Dollars, but right now the cash in the forex market is flowing towards high yield and the AUD and NZD offer that. So, there´s no immediate effect on these currencies, but if the commodity prices remain low the pressure will build up and when the search for yield ends then we will see the real impact on the NZD and AUD.  

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