When the Dollar Sneezes, Commodities Catch a Cold

by SIACharts.com

Over the past year, commodity markets have been heavily shaped by the evolving direction of the U.S. dollar, a key intermarket force. Because most globally traded commodities are priced in U.S. dollars, changes in the dollar’s value can influence global demand. When the dollar strengthens, it can make commodities more expensive for international buyers, potentially softening demand and prices. Conversely, a weaker dollar tends to improve affordability and competitiveness. Importantly, this relationship must be viewed in context. While the dollar has shown short-term strength over the past few months, it remains broadly weaker over the year. In fact, based on several major currency pairs, the U.S. dollar is on pace for one of its softest annual performances since the 1980s.In the short term, over the past three months, the dollar has appreciated modestly against a number of currencies. It rose over 4% versus the Japanese yen and New Taiwan dollar, and over 3% against the South Korean won and New Zealand dollar. There were also smaller gains against the British pound, Canadian dollar, and Chinese yuan. This temporary bounce in the dollar coincided with softer prices across several commodity groups. In grains, oats fell nearly 24%, rough rice dropped 17.8%, and wheat declined by more than 7%. Soft commodities such as cocoa and orange juice were also weaker, falling 25.8% and 17% respectively. Energy prices moved lower as well, with WTI crude oil down almost 7%, gasoline down more than 12%, and heating oil and Brent crude also registering declines. These moves align with the typical intermarket pattern where short-term dollar strength applies downward pressure on U.S.-priced commodity markets.

Hard vs Soft: Diverging Performance Across Commodities

Despite that broader backdrop, some commodities moved higher over the same period. Precious metals were notable performers. Silver rose 33%, palladium climbed 32%, platinum was up 22%, and gold gained nearly 23%. Agricultural products such as coffee also performed strongly, advancing 35% over the three-month period. Meat futures also showed relative strength, with feeder cattle and live cattle rising 15.6% and 8.6% respectively. These moves may reflect a combination of localized supply demand imbalances, weather-related production factors, and investor interest in physical asset markets independent of broader macroeconomic drivers.From a medium and long-term perspective, including year-to-date and one-year measures, the performance picture becomes more differentiated. Over the past year, the U.S. dollar has declined against a broad set of currencies, including double-digit drops versus the Brazilian real, Hungarian forint, Mexican peso, Swedish krona, and Polish zloty. Even with the recent uptick, the dollar remains lower year-to-date against most of its trading partners. This longer-term weakness has in some cases coincided with stronger performance in certain commodities. Metals such as silver, up 67% year-to-date, platinum up 87%, and gold up 54%, have posted significant gains over the past year. Coffee and cattle futures have also moved sharply higher during this period. While direct causation is difficult to isolate, these moves occurred in an environment where the U.S. dollar was generally weaker and commodity-specific supply factors were also at play.

Soft Commodities Offer a Lesson in Volatility for Hard Metal Investors

In contrast, several commodity markets have experienced notable weakness. Cocoa and orange juice have declined more than 50% year-to-date, while grains such as oats, rice, and wheat are down between 8% and 24%. Energy commodities including WTI crude and natural gas have also softened. These declines coincide with shifting global growth expectations, easing supply constraints, and favorable harvest conditions but ultimately the US dollar is involved.Soft commodities illustrate how quickly prices can reverse in response to factors like currency fluctuations and supply changes. This volatility offers a valuable lesson for hard metal investors, who generally experience more stable price trends. The rapid selloffs in soft commodities highlight the risk that strong returns can be quickly eroded in a steep downturn.Overall, recent short-term U.S. dollar strength has coincided with softness in grains, energy, and soft commodities. Yet over the longer term, the dollar has broadly weakened, supporting gains in metals, coffee, and cattle. Assessing commodity price behavior through both short- and long-term lenses is essential to capture the full market dynamic.

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