Are Commodities And EM Stocks Becoming Less Sensitive To The Dollar?April 16, 2015
Are commodities becoming less sensitive to changes in the USD? The surge in the dollar has negatively affected commodities somewhat but not nearly as much as one might have expected given that the real trade-weighted dollar is 19% higher than it was in July. Commodities are about 19% lower during this time. However, when the dollar surged by 14% in 2008, commodities fell by 39%.
For EM stocks, there is no doubt they have been on a tear in April. EM stocks are down about 8% since July. However, this is relatively a minor drop considering in 2008 EM stocks were down by nearly 50% when the dollar was surging. EM stocks also dropped by about 32% from 2000 to early 2002 when the real trade-weighted dollar index rose by about 18%. Will EM stocks be able to continue to relatively shrug off a stronger dollar? Or will the USD make an about-face and weaken? It seems that something has to give and the gap that has opened up in the chart below will need to be reconciled one way or another.