Commodities And Commodity Currencies: Upward Trend Into 2018

 Commodities And Commodity Currencies: Upward Trend Into 2018

The dollar (AUD) and also the Canadian dollar (CAD) area unit referred to as “commodity currencies” for a reason. the rationale is that in spite of what’s happening in their associated native economies, on a multi-year basis they'll typically trend within the same direction as broad-based trade goods indices.

Since 2001 there are 3 major rallies within the AUD, every lasting about 2.5 years. These 2.5-year rallies area unit indicated by vertical red lines and notes on the subsequent chart. Our assumption, that is additionally indicated on the subsequent chart, is that the fourth 2.5-year  AUD rally began in early-2016. In alternative words, we tend to area unit dead reckoning that the AUD upward trend that began in early-2016 can continue till around mid-2018. moreover as being supported the lengths of previous major upward trends, this guess relies on what we tend to expect from trade goods costs.

Speaking of trade goods costs, additionally to the AUD the chart shows the GSCI Spot trade goods Index (GNX). Unsurprisingly, each of the 2.5-year AUD rallies indicated on the chart coincided with AN upward-trending GNX. In terms of worth direction, the most distinction between the post-2001 performance of the AUD and also the post-2001 performance of GNX is that GNX trended upward from the start of 2002 till its blow-off prime in mid-2008 whereas the AUD knowledgeable a flat 2-year correction throughout 2004-2005.

Mainly for interest’s sake (pun intended), the chart additionally shows the yield on the 10-year T-Note. The 10-year charge per unit had a downward bias throughout 2 of the AUD’s 2.5-year rallies And an upward bias throughout the third rally. we tend to expect that it'll have AN upward bias over the course of the present (fourth) rally.

The next chart shows the connection between the CAD and trade goods costs as delineated by GNX. If something, with one notable 6-month exception the correlational statistics between the CAD and GNX has been even stronger than the correlational statistics between the AUD and GNX. The notable exception occurred throughout the primary half 2008, once a speculative blow-off move to the side within the trade goods markets was in the middle of a decline within the CAD. This divergence was a warning that the commodity-price gains would encourage be temporary.

We expect the upward trends within the trade goods indices and also the trade goods currencies to increase well into next year, though it’s seemingly that short corrections can begin presently.

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