Commodity Currencies Fall on Lower Commodity Prices
The value of currencies closely linked with commodities exports fell on Friday, following a dip in prices of major commodities. At around 6 am GMT, the U.S. dollar rose 0.39% against the Australian dollar to stand around 0.9509 and 0.27% against the New Zealand dollar to trade around 1.2459. The currencies of other major exporters of commodities, like the Russian ruble and the South African rand, have also weakened against the world's dominant currency. The greenback grew 0.25% against the rand and trades at $6.8646. The dollar made its smallest gains against the ruble, however, as it trades around 28.1659, a rise of 0.21%.
The value of the commodity currencies was pushed back by falling prices of major commodities. Gold lost 0.18% to trade around $1,526.85, while silver's fall was much steeper, sliding 0.56% to $35.33. Fossil fuels had a rough day as well. Crude oil is down 0.61% to $94.35. At the same time, natural gas is trading around $4.417 (down 0.57%), while heating oil stands around $2.996 (down 0.45%).
One explanation for falling prices of commodities is demand destruction. Some analysts have been warning for some time now that the prices of some commodities have risen too high and are starting to effect demand. One piece of evidence that fits well into this story is rising natural gas storage in the U.S. According to the U.S. Energy Information Administration, the U.S. natural gas stockpile rose 69 billion cubic feet in the week ending June 10, compared to a week earlier.
The economic recovery is major economies, including the U.S., European Union and Japan, is still on shaky ground. A subdued production in these economy will probably keep a downward pressure on the prices of commodities for some time.
One commodity currency is holding its ground against the U.S. dollar, however, as the value of the Chile peso remains flat, trading at 472.05. Chile is a major exporter of copper. In today's early trading, its currency has managed to withstand the falling price of copper, which is down 0.34% to $4.101.
Traders who believe in the demand destruction story, i.e. that the prices of certain commodities are so high they are hurting demand, will be interested in shorting commodity prices. As a result, these traders will keep a close eye on the PowerShares DB Commodity Double Short ETN (NYSE: DEE) and the ProShares UltraShort DJ-AIG Commodity ETF (NYSE: CMD). At the same time, traders who believe in this scenario will be interested in shorting the commodity currencies. The following ETFs will, therefore, be of interest to these traders: the ETFS Short Australian Dollar Long US Dollar ETC ETF (SAD) and the ETFS Short New Zealand Dollar Long US Dollar ETC (Sterling) ETF (SNZP).
Other traders will turn their attention to China, as the Asian giant is now the biggest consumer of raw materials. Continuing strength of the Chinese economy might be enough to maintain the prices of commodities high. As a result, these traders will be interested in the Dow Jones-AIG Commodity Index Total Return ETN (NYSE: DJP), the E-TRACS Constant Maturity Commodity Index ETN (UCI), and the ELEMENTS Rogers International Commodity Index ETN (NYSE: RJI). If traders who find appeal in the scenario of rising commodity prices wish to trade in currencies as well, they should look for the CurrencyShares Russian Ruble Trust ETF (NYSE: XRU) and the WisdomTree Dreyfus South African Rand Fund (NYSE: SZR).
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