HomeMarket NewsCommodities NewsVolatile Currency markets and its Linkage with Commodities

Volatile Currency markets and its Linkage with Commodities

Profile image

By CNBC-TV18 May 10, 2019, 10:52:03 AM IST (Updated)

Volatile Currency markets and its Linkage with Commodities
With Fed now adopting a more cautious approach to raising rates, the fear of unknown seems to have subsided but the volatility in emerging market currencies are likely to continue to surprise the commodity ecosystem. Significant volatility witnessed in Turkey and Venezuelan currencies during 2018 is a case in point that market participants should take care.  Brexit will remain a lingering concern for the currency markets with much of the NDF volumes in emerging market currencies happening in the London OTC markets. Besides, a failed Brexit effort will have wide ramifications in Pound Sterling and Euro against the US Dollar, potentially reflecting on the commodity markets particularly Gold which is considered as a quasi-currency asset class despite being a commodity by all other means.


Inverse relationship of commodities with US Dollar makes imperative the influence of currency on commodity pricing. When the dollar strengthens against other major currencies, the prices of commodities drop and when the dollar weakens, commodities generally move higher. The main reason for this is because most commodities are freely traded in international markets and prices are quoted in US dollars. Two key commodities used in the manufacturing process, Crude Oil and copper prices on analysis had reflected a negative correlation of 84% & 60% respectively with Dollar Index in the past five years.



INR breaching a record low of INR 74/USD in October, 2018 to recover smartly to reach 68.5 in March, 2019, a 7-month high during FY19 is a clear indication that INR has also not been insulated from the emerging market currency conundrum. With inflation management being an important mandate of the central bank, its efforts in controlling inflationary pressures will also be reflected on the ongoing currency rates and hence the commodity prices which are internationally traded. Interest rates, the instrument of inflation control also determine the cost of carry of the commodities, thus affecting both physical and financial markets. Thankfully, major risks for both currency and commodities can always be managed with the instruments available in the financial ecosystem.

This is a partnered post.
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!