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2016issue C0821

A peaking dollar and the commodity as a two-market case

Dollar-listed commodities generally weaken when the dollar strengthens, because currency-translation makes the same listed price dearer for foreign buyers. This archive case then places that path on a commodity-index overlay so a shared weeks-to-months regime, not a standalone supply story, sets the context.

  • Commodities listed mainly in US dollars generally weaken when the dollar strengthens and strengthen when it weakens, because foreign buyers treat the same listed price as dearer or cheaper after conversion.
  • Currency-translation is the change in a dollar-listed commodity's cost to non-US buyers after the greenback rises or falls.
  • Intermarket-analysis reads a commodity against the dollar index so a shared price regime is visible instead of an isolated local-supply narrative.
  • A large mid-2010s commodity decline was attributed primarily to a currency-market repricing rather than to local commodity supply alone.
Entries in this reading2 entries
Current trackCurrency translation33 readingsIntermarket analysis194 readings

A listed dollar price is not what every buyer pays

Commodities that are largely listed in US dollars generally weaken when the dollar strengthens and strengthen when the dollar weakens. Foreign buyers treat the same listed price as dearer or cheaper after conversion.

That conversion is currency-translation: the change in a dollar-listed commodity's cost to non-US buyers after the greenback rises or falls. Dollar-priced demand is the foreign consumption that can expand when a weaker dollar makes the same listed price cheaper after conversion, and contract when a stronger dollar does the reverse.

A mid-2010s decline read as a currency repricing

A large mid-2010s commodity decline was attributed primarily to a currency-market repricing rather than to local commodity supply alone.

Crude oil's 2014 peak lined up with a dollar trough, and later highs and lows in the two markets arrived in the same general timeframe. Oil's supply glut, idle US shale output, and a few disruptions were treated as valid local stories that still left the oil-dollar link intact.

Metals and grains also repriced as currency markets adjusted to Federal Reserve and other central-bank policy shifts.

A commodity-index overlay shows the shared regime

Intermarket-analysis is reading a commodity against the dollar index so a shared price regime is visible instead of an isolated local-supply narrative. A commodity-index overlay is a paired view of the dollar index and a broad domestic commodity index used to inspect whether the two markets are moving in opposite directions.

An overlay of the US dollar and a domestic commodity index showed a strong inverse relationship across the window charted. From late 2015 through the mid-2016 snapshot, the dollar index had remained inside a 93.00 to 100.00 range.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
24 of 25 in the Currency translation track
201714-17 pp.Next on Currency translationS&P 500 energy gauge as a short-horizon regime filterMaterial S&P 500 advances were described as typically coinciding with weaker bonds and a preference for higher-beta currencies such as the Australian dollar over the Japanese yen.
All readings on this track · 25 readings
  1. 1989Constructing currency-translated commodity bars
  2. 1992Gold, the dollar, and a foreign-currency proxy
  3. 1993Overseas fund translation after the European currency break
  4. 1995Inflation-ratio overlays, peso breaks and election cycles
  5. 2002A liquidity filter and intermarket overlay for one currency setup
  6. 2002Classify a weak-dollar regime before overseas sales and index proxies
  7. 2003A currency pair as a regime spread with trend and leverage bounds
  8. 2005Score a currency position as a cross-market portfolio
  9. 2005CAD/JPY as an oil translation: correlation, carry, and portfolio role
  10. 2006Placing a currency trade inside a gold, oil, and yield regime
  11. 2006Classifying the yen regime after Japan's liquidity exit
  12. 2006Two horizons in the 2006 euro-dollar advance
  13. 2007Rolling-window tests for gold hedge slogans
  14. 2010Stacking commission and currency costs on international fills
  15. 2010A dollar-pivot intermarket regime for currency pairs
  16. 2010Constructing currency pairs from basket relative strength
  17. 2012Same-way versus opposite-way currency pair construction
  18. 2012Signed two-currency session spread construction
  19. 2012A two-pass reading of listed currency sleeves
  20. 2013Closed foreign futures still leave a leftover currency line
  21. 2014Forex pair ranks from seven cross-currency scores
  22. 2015Currency translation across rate and trade regimes
  23. 2015Ten-year policy phases and FX capital-flow regimes
  24. 2016A peaking dollar and the commodity as a two-market case
  25. 2017S&P 500 energy gauge as a short-horizon regime filter
By fieldIntermarket and spreads264 readingsBy year2016134 readings
All 33 readings tagged Currency translation
Also on Currency translation5 readings
1992Gold, the dollar, and a foreign-currency proxy1993Overseas fund translation after the European currency break1995Inflation-ratio overlays, peso breaks and election cycles2002A liquidity filter and intermarket overlay for one currency setup2002Classify a weak-dollar regime before overseas sales and index proxies