Mixed Forecast for Pound Sterling (GBP) vs Australian Dollar (AUD), New Zealand Dollar (NZD) and Canadian Dollar (CAD) as Commodity Prices Fall

September 21, 2015 - Written by Toni Johnson

STORY LINK Mixed Forecast for Pound Sterling (GBP) vs Australian Dollar (AUD), New Zealand Dollar (NZD) and Canadian Dollar (CAD) as Commodity Prices Fall

AUD, NZD, CAD Exchange Rate ALERT and Future Currency Forecast

The Australian Dollar (currency : AUD), New Zealand Dollar (currency : NZD) and the Canadian Dollar (currency : CAD) are often grouped together as the ‘Commodity Dollars’ by FX insiders, and for good reason.

The Australian economy is largely driven by its exports of metals – think Tin and Copper - while New Zealand’s specialises in the export of soft commodities – the Kiwi economy’s premier shipment is milk powder and other dairy products also play a large part in NZ’s economic performance. Canada is heavily dependent upon the export of oil and gas, particularly to the lucrative US market.

Commodity Price Shifts Impact Australian Dollar, New Zealand Dollar, Canadian Dollar Trading

The relative performances of AUD, NZD and CAD are therefore heavily linked with movement in commodity prices in the global markets. This means that the price action for a range of raw materials, from sugar to silver to beef to natural gas, has provided real reason for concern for investors holding the Commodity Dollars since they reached multi-year highs during the first half of 2011.

Pound Sterling Down from Best 2015 Rates against AUD, NZD, CAD

The Goldman Sachs Commodity Index, which measures the value of a basket of commodities, has dropped to levels not seen since 1999 during recent sessions, and a casual glance at the trading price of investment trusts specialising in companies extracting and trading in raw materials reveals the extent of the collapse in asset prices in this class. The Black Rock Commodities Income investment trust (BRCI.L), which trades on the London Stock Exchange and features BHP Billiton (BLT.L), Rio Tinto (RIO.L) and Exxon Mobil (XOM.NY) as three of its largest holdings, struck a 7 ½ year high of 164.50 in April 2011 before steadily retracing down to 57.0 last month – a loss of over 65% in its value.

Meanwhile, investment trusts specialising in smaller cap commodities companies have incurred even heftier losses – the City Natural Resources High Yield trust PLC (CNY.L), for example, has fallen from a high of 360.12 also in April 2011, all the way down to as low as 76.0 during the final week of last month. This represented a mammoth 78.9% correction, illustrating the extent to which investors have lost their appetite for Commodities.

US Dollar Conversion Rate Predictions: US Rate Hike Could See Australian Dollar, New Zealand Dollar, Canadian Dollar Decline

An immutable law of the markets states that commodity prices tend to be inversely correlated with the value of the US Dollar (currency : USD) – this causal link is said to arise because the price of raw materials is invariably denoted in USD, so a strengthening of the Dollar means that purchasers need to spend more of their own currency to achieve the same amount of the raw material they are buying. This relationship has led some market insiders to suggests that if (or when) the US Federal Reserve raises its headline interest rate, (most likely at its December meeting), there may be further losses for Commodities and for the Australian Dollar, New Zealand Dollar and Canadian Dollars alike.

However, other experts point out that, historically at least, the first US interest rate increase in a fresh policy tightening cycle can be expected to trigger a slowdown in US economic activity, sending investors elsewhere and weakening the Buck. Interest rate hikes over the past four decades have almost always been followed by a fall in the value of the Greenback. Such an outcome at the end of this year would send global commodity prices higher, favouring AUD NZD and CAD. Analysts agree on one matter – the outlook for AUD, NZD and CAD is decidedly mixed.

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