Commodity prices and the dollar - The changing relationship

 

The dollar and commodity prices usually move in opposite directions. When the dollar gets stronger, there is a fall in commodity prices given most commodities are priced in dollar. The dollar rise makes commodities more expensive for importing countries and thus there is a fall in demand. However, over the last two years there has been a change in this relationship. The dollar strengthening has been matched by an increase in commodity prices.  See "The changing nexus between commodity prices and the dollar: causes and implications".

The rolling correlation has moved to a positive number over the last two years; however, the relationship is trending back to negative and is currently close to zero.  While some of this change is a function of recent shocks, there is also the key difference in US oil flows. The United States is now a net energy exporter.  Higher oil prices have increased the US terms of trade. 

Commodity exporters have done better in the current environment which has turned to commodity (oil) dollar relationship in favor of the positive correlation. This upends some traditional views between commodity importers and exporter currencies.