Is the CRB index the key to the Canadian dollar?
Conventional wisdom will
try to convince you that the so-called commodity currencies correlate with the
commodity index – the CRB. So how come the CRB is jumping to new
highs these hours, whereas AUD as well as NZD are struggling to keep a footing –
so far in vain – in the fx-market?
The simple answer is – the skyrocketing price of
oil. With oil climbing above 70 USD a barrel again, the CRB-index has managed to
stage new highs despite the fact that most commodities apart from oil, copper
and to some extent gold have gone almost nowhere the last couple of years. Hence
the answer to the above question – the overall commodity complex has led a
lackluster life for long therefore being of no benefit to AUD and NZD.
On the other hand the third and last commodity
currency – CAD – has staged an impressive rally in the wake of the rising oil
price, and might very well be named the new “petro” dollar. Although Canada is
not among the top of the pops of the oil exporting countries (7% of world
production of oil yet holding the second largest oil reserves) the recent
Chinese commercial interest in the Canadian oil industry has made the CAD
correlate very closely with the development in the oil price.
Considering the fact that the total energy
complex constitutes 39% of the CRB index, the present good correlation between
CAD and oil makes sense for now at least. So with the dollar gaining ground
again in general AUD and NZD are weakening in synch with no help of substance
from their commodities, and as long as the oil remains bid, USD/CAD will have
deep troubles rising as expected. We need oil to let go again.
Lone Olesen is a Senior Forex Strategies for Jyske Bank
based in Denmark. Ms. Oleson is an active Forex trader with nearly 20 years of
experience in currency futures.