5 world currencies that are closely tied to commodities

November 18, 2015 01:00 PM

For more than a year now, commodity prices have been under pressure from the strong U.S. dollar and slowing global demand. This has made a huge dent in the balance sheet of many net exporters of resources, in turn weakening their currencies.

This should come as a shock to no one, but what most people don’t realize is just how closely some currencies track certain commodities. When I presented at the International Mining and Resources Conference in Melbourne, Australia, earlier this month, I shared several charts that show this correlation. Many attendees were astounded—and we’re talking professional economists, money managers and CEOs here.

With that said, I think it’s important that you see this correlation as well. Below are five world currencies that have been impacted by lower commodity prices.

1. Australian Dollar

Australia now accounts for around a third of global iron ore production, according to the country’s budgetary office. This means that its income is very sensitive to price changes. As demand from China, the world’s largest consumer of iron ore, has softened, so too has the Australian dollar

2. Canadian Dollar

The sixth-largest oil producer in the world is Canada, about a quarter of whose exports is oil. The Conference Board of Canada, a not-for-profit economic research group, estimates that sales for the country’s energy sector will recede a sizable 22 % this year. In Alberta, where revenue from oil sand exports had until recently helped the province become the fastest-growing in Canada, GDP is expected to contract 1 %. And in September, the country’s economy shrank for the second straight quarter. As for the Canadian dollar, it’s fallen around 15 % against the dollar for the one-year period.

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About the Author

Frank Holmes is CEO and chief investment officer of US Global Investors. This first appeared in his Frank Talk blog. For more updates on global investing from Frank and the rest of the U.S. Global Investors team, follow on Twitter at www.twitter.com/USFunds or like on Facebook at www.facebook.com/USFunds.