Commodities Continue to Suffer Before Fed Decision
Major commodity markets, many already trading near multi-year lows, could face more pressure should the US Federal Reserve suggest an interest rate rise this week.
Precious metals may be the most susceptible, as gold prices in recent days have shown their strongest negative correlation with the dollar in two years, at over minus 0.94.
Silver and platinum have also displayed strong negative correlations, suggesting the precious arena could suffer as a whole if the dollar gains.
“The markets are positioned for something that could be a little bit more hawkish (from the Fed).
Other sectors have also been highly correlated, with Brent crude, corn and sugar prices all showing correlations of minus 0.80.
“In the short run, I think it’s the correlation trades tied to the dollar that weigh on commodities,” said Peter Sorrentino, senior portfolio manager at Huntington Funds in Columbus, Ohio.
In the longer term, however, the stronger dollar would also put pressure on emerging economies that had to pay for commodity imports priced in US Dollars.
A stronger dollar looks set have its biggest effect on importers like Japan. The Japanese yen has eased from about 102 yen to the dollar a month ago to its current level of 107.
Crude prices were high enough and with cheap yen, energy costs are higher.
“We’re watching the dollar extremely closely because it’s in a very fluid situation that is driving a lot of things,” said Walter ‘Bucky’ Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama.
Source: Reuters- Commodities
