Weaker Dollar Commodity Producers Nightmare
Weaker Dollar is and likely to increase commodities producing countries’ as well as their respective central banks’ headaches by shrinking their policy options. Even central banks of commodity consuming but weaker economies are facing similar policy issues. In our previous article we made an argument in this regard.
So far, central banks like, Bank of Japan (BOJ), European Central Bank (ECB), Reserve Bank of New Zealand (RBNZ), all saw their respective currencies to strengthen against Dollar, despite introducing fresh stimulus or rate reduction.
Commodities producers’ whose economy suffers from lower returns on exports are seeing situation to deteriorate especially this year, thanks to weaker Dollar.
Oil price, jumped somewhere around 40-50% since February and now down just around -1.5% YTD, however oil producers like Russia, saw its currency strengthen by more than 6%, which means oil price is down more this year in terms of Rouble, which is not bright for Russian producers’ and economy. Canada, another producer has so far, seen its currency strengthen by close to 5% this year so far against Dollar.
Dairy prices in March dropped by -1.3% but in New Zealand Dollar term, drop is more than double, again thanks to weaker Dollar.
Copper is up almost 1% YTD, however biggest producer Chile saw its currency strengthen more by 4.6% against Dollar.
Similarly, Iron ore’s 30% rally this year gets reduced when converted into Australian Dollar.
Unless, Dollar changes course, producers are to suffer economically, while their currency strengthens.
The material has been provided by InstaForex Company - www.instaforex.com
