Have we seen the End of Commodity Supercycle? CAD, AUD, NZD Forecast to Fall vs Pound Sterling

February 24, 2016 - Written by James Fuller

STORY LINK Have we seen the End of Commodity Supercycle? CAD, AUD, NZD Forecast to Fall vs Pound Sterling

AUD and NZD Predicted to Decline as Raw Materials Prices Fall

Renowned hedge fund manager David Einhorn has had plenty to say about the slump in the global price of raw materials which has taken place in recent years. The closely-monitored Bloomberg Commodity Index peaked at well above the 160.00 threshold in March 2011 and reached a fresh multi-decade low of 72.88 in the third week of last month, harming commodity-correlated currencies.

Observing this move, Einhorn noted that, ‘bulls are assuming the current commodity environment is an ordinary cyclical downturn,’ before going on to state that, ‘we believe it is the end of a commodity supercycle, and this will exert a long period of earnings headwinds for these companies.’

Einhorn’s words could have a pronounced effect on price action in the currency markets, particularly if his assertion that, ‘market participants seem to be concerned about a global slowdown, and are losing faith in central bankers,’ looks to be coming true.

Analysts forecast that the main losers if he is correct and raw material prices have has further Southwards to travel, will be the Commodity Dollars, with the Australian Dollar (currency : AUD) and New Zealand Dollar (currency : NZD) likely to be particularly hard-hit, although Australia is trying to diversify away from mining towards a service-based economy.

Crude Oil may Come Under Increased Pressure as Commodities Slump, Canadian Dollar to Decline

With the asking price of virtually all raw materials moving in the same direction during recent months, the price of crude oil may also come under pressure – an outcome which will hit the Canadian Dollar (currency : CAD). Analysts are therefore predicting strong gains for the Pound Sterling (currency : GBP) against this basked of export-driven tenders in the medium to long term.

Today’s session is relatively light on significant data releases, with nothing for CAD or NZD but a tier 3 New Zealand release, but given the current febrile mood amongst oil traders, this afternoon’s US Crude Oil Inventories data could prove to be market-moving.

The price of a barrel of crude has shown signs of stabilising during recent weeks, but if this afternoon’s numbers hint that reserves of ‘Black Gold’ continue to increase Stateside, then expect both the Canadian Dollar and Norwegian Krone (currency : NOK) to suffer near-term downside.

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TAGS: Australian Dollar Forecasts Canadian Dollar Forecasts New Zealand Do Forecasts