Market Morsel: Aussie dollar helps.
Market Morsel
The US dollar is surging since Donald won the election. Why is this important?
In the chart below, the DXY is displayed. The DXY is an index of the US dollar against a basket of different currencies (Eur, Yen, GB, CAD, SEK and CHF).
A higher DXY (U.S. Dollar Index) often reduces the price of commodities because of the relationship between the U.S. dollar and global commodity pricing.
- Commodities are Dollar-Denominated
Most global commodities, such as oil, gold, and wheat, are priced in U.S. dollars. When the dollar strengthens (as the DXY rises), it takes fewer dollars to buy the same amount of these commodities.
- Higher Costs for Foreign Buyers
A stronger dollar makes commodities more expensive in terms of other currencies. This often reduces demand from international buyers who need to convert their currencies to dollars to purchase these goods. Lower demand can drive prices down.
The second chart shows the Australian dollar against the US dollar. One the last day of September the A$ was at 0.69, and has now declined to 0.64.
As the Australian dollar declines, it makes us more competitive on the global market. When the A$ depreciates, foreign buyers can purchase more Australian wheat for the same amount of their local currency, boosting demand. This increased affordability can lead to higher export volumes, especially in price-sensitive markets, enhancing Australia’s appeal as a wheat supplier.
