The US dollar has surged 3% against the British Pound, the Euro and the Swiss Franc last week and nearly 4% against the Australian dollar. The Yen, the Renminbi and the Real are the only currencies not to have fallen. The Renminbi however has halted it’s relentless rise against the dollar and a basket of other currencies as the government has looked to maintaining growth rather than inflation as its primary objective. The Renminbi had risen 8% against the basket since the beginning of this year but it would seem the Chinese authorities are becoming concerned that slowing global growth and a rising currency are making life too tough for many Chinese exporters. For the time being at least it would appear the Renminbi’s relentless three year appreciation is over. The Brazilian Real is holding it’s own on the back of 13% interest rates but with the Brazilian Bovespa Index down 21% since June and currency outflows exceeding inflow by a factor of 6 to 1 it is only a matter of time before the Real follows the market down. That will have the effect of making Brazilian exports more competitive later this year and next.
The weakening dollar has been one of the fundamental drivers of rising commodity prices over the last 18 months as investors have sought to hedge their currency risk. But as the commodity prices have come off in response to a rising dollar many believe the commodity markets may have further to fall. Certainly the currency traders expectation is the dollar has further to rise and without signs of a significant increase in global metal demand, the pressure will be generally downwards for the metal markets in the short term.