AUD and Commodity prices aren’t in sync

Last week, I wrote about the relationship the S&P 500 has with the AUD/JPY currency cross.

The chart below shows the dance that the AUD/USD does with commodities prices.

To be specific, it’s with the CRB Index which tracks a basket of 19 commodities being, Aluminium, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, RBOB Gasoline, Silver, Soybeans, Sugar and Wheat.

Generally, when commodity prices rise, so does the Australian Dollar (especially against the U.S. Dollar)

It hasn’t been doing so lately.

What’s wrong?

Why the divergence?

Which index or price is the one to believe?

I think that overall, commodities prices will decline.

In the CRB’s case, perhaps by 25%, down to the 240 point region.

While the AUD/USD may converge up to a limit of 0.7640, but compared to its current level of 0.7180 it’s not a compelling bet. It’s more of something to watch should that price suit your strategic investment or corporate purposes.

June 7, 2022

by Rob Zdravevski

rob@karriasset.com.au

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