Market Minute: The dollar's rise spells the end of commodities' run
by Donald W. Dony, FCSI, MFTA, Technical Speculator
July 20, 2016
A steady stream of strengthening fundamentals are driving the U.S. dollar higher. Healthier data from jobs, consumer spending and housing have put a tailwind on the greenback.
Moreover, America's economy is outperforming the weaker economies aboard. And this is setting a backdrop for improved prospects for another rate hike in the months ahead.
The impact of this renewed dollar strength is felt not just on other world currencies but on commodity prices in general.
The benchmark Commodity Research Bureau Index (CRB), after enjoying a 26 percent run in the first half of the year, is now feel stiff headwinds with the dollar's encroachment.
For example, Light crude oil, after roaring up from the sub-$30s, is now finding it difficult to hold the $50 mark. Over the last two months, WTI has given back 14 percent and appears to be heading lower.
Gold's advance is another natural resource that appears to have hit a wall.
The precious metal leaped-up almost 30 percent from $1075 to $1375 before putting the brakes on. And with the dollar's current strength, $1375 is likely the top of the rise.
At this junction, copper appears to be the lucky survivor of the dollar's rebound with a bounce to $2.30 still unfolding.
Corn and wheat prices are also falling victim to the rising U.S. dollar.
Corn is now heading lower and expected to retest the October 2014 low and wheat has just dropped to a new 5-year low.
Bottom line: With improving U.S. economics driven by favourable unemployment numbers, consumer spending and housing data, the big dollar has the wind in its sails.
This positive performance has taken some of the upward strength away from the commodity group.
And as the U.S. is expected to deliver a steady procession of healthier data over the next few months, this should spill-over to the dollar and keep most commodity prices on their backfoot.
Copyright © Donald W. Dony, FCSI, MFTA
