Цикличность цен на сырье определяет валютные курсы экспортно-ориентированных экономик

Some economies in the world focus a lot on exporting, and that can prove to be very beneficial for them. However, the currencies of these commodity-exporting countries tend to move in tandem with the commodity prices. If those are booming, then the foreign investment increases, the export revenue is higher and the national currencies are appreciating. But when there are downturns, there are lower export earnings, weaker economic growth and reduced capital inflows. If you are trading these currencies using the top Forex brokers, using such information can prove to be a game-changer a lot of the time. Understanding the commodity supercycles These are different from the regular price fluctuation for a commodity. And that’s because they last for many years, and they are driven by structural instead of temporary factors. Most commodity supercycles involve a sustained increase in the commodity demand, long periods of higher prices, a larger investment in the resource sectors, an expansion of the global trade, increased capital flows towards the producing countries and so on. These can end up lasting around 25 to 40 years, and can affect multiple commodities at the same time. Historically, we had various commodity supercycles. There was the industrial revolution one, where there was a higher demand for coal, steel, iron ore and agricultural products. After WW2, there was a huge focus on energy resources and industrial commodities. The China-led supercycle focused on demand for coal, oil, iron ore, copper and agricultural commodities. Commodity export economies There are different countries out there which do rely on exporting a commodity or multiple ones in order to boost their profitability and grow their economy. For example, Australia exports natural gas, coal and iron ore. Canada exports metals, oil and gas, Brazil exports coffee, soybeans and iron ore. Russia is known for exporting metals, gas and oil, whereas Chile is a major copper exporter and South Africa exports minerals, platinum and gold. Naturally, the currencies of these countries will have a correlation with the commodity price. What’s the relationship between commodities and exchange rates? When it comes to the trade balance channel, if the commodity price is higher, the export revenue is increasing, the trade surpluses are expanding and the foreign buyers are demanding more domestic currency. And when that happens, the exchange rate appreciates. But if the commodity prices are lower, that will end up making the currency weaker. Higher commodity prices are improving the current account balance. In this case, the increased foreign exchange inflows, there’s greater investor confidence and you can find stronger external balances as well. Plus, when the commodity booms attract extra investment. That will increase exposure to mining projects, the energy infrastructure, government bonds and commodity-related equities. Currency appreciation during the commodity booms As the commodity is booming, that will bring in a lot of strength for the currency of that country, which is a thing to keep in mind. For example, when we are talking about a rising export income, when the commodity price is higher, the export earnings surge, the corporate profits rise and employment expands. Investors are always trying to find opportunities in resource-rich economies. That could bring foreign direct investment, infrastructure financing and portfolio investment as well. What you do need to keep in mind is that commodity booms will stimulate industrial activity, government spending and consumer confidence. In general, when we have stronger economic performance, that will boost capital and it will support exchange rates. Currency depreciation Sometimes, there will be commodity downturns, and those are a part of the process. When they are taking place, what happens is that you will see falling export revenues. When the commodity prices are lower, that will reduce the export income, corporate earnings and the foreign exchange reserves. Naturally, that has a bad effect on the domestic currency, which is always going to happen in some manner. Additionally, you will notice a capital outflow. Investors tend to withdraw funds from these economies when there are downturns. When you see that, it will lead to exchange rate pressure, a lower investment and higher borrowing costs as well. Plus, it can bring fiscal deterioration. The government revenue declines if the country is dependent on the commodity prices. That will bring a budget deficit, rising public debt and a lower investor confidence as well. Monetary policy and the commodity cycles Central banks have to respond to the commodity-driven exchange rate fluctuations. And that’s why they are going to take certain actions in order to handle the process accordingly. During the commodity booms, central banks are facing a higher inflation, an increase of asset prices and currency appreciation. They will adjust the interest rates, do any foreign exchange intervention and even focus on reserve accumulation, depending on the situation. But if the commodity is not doing well, it will see an economic slowdown, financial instability and currency depreciation. There are different responses here, depending on the situation at hand. For example, they could lower the interest rates, offer liquidity support and stabilization measures as well. It’s imperative for the central banks to try and manage these fluctuations. Otherwise, the country’s economy will have to suffer. So a lot of focus and attention needs to be placed on the policies used and they need to be tested for effectiveness and good results. If not, then the results will not be as good, and you clearly need to avoid any issues that could potentially arise in such situations. Conclusion At the end of the day, the most important thing is to ensure that you understand how these commodity supercycles are affecting the currency strength. If we are talking about export economies that focus on these commodities, then the effects can be very large. And that’s why it’s imperative to understand how these currencies are affected and how commodities change their value. As a trader, this can be a game-changer, and it’s exactly what you need to take into consideration. It will only help you in the long term!