SUMMARY
- The U.S. dollar has historically had an inverse correlation to commodities. When the dollar strengthens, commodities become more expensive in non-U.S. currencies, which tends to lead to lower demand and thus lower prices. The inverse applies to dollar weakness.
- This relationship temporarily broke down over the 18-month period starting in 2021, as both the dollar and commodities rallied in tandem. The rise in the commodity index was predominately driven by higher energy prices as global demand increased post-COVID-19 lockdowns, while supply has been constrained by the Russia-Ukraine war. The dollar on the other hand has been a beneficiary of this global uncertainty, given its perceived safe-haven status.
- The relative attractiveness of U.S. Treasury yields has provided further support for the dollar, as the Fed has taken a more aggressive stance in fighting inflation, hiking rates faster than its developed market peers. The U.S. dollar index has gained 17.9% year to date.
- Commodity prices have recently come under pressure – crude oil is down over $40 dollars per barrel from its June highs – as inflation takes its toll on global economic growth, calling the resilience of global demand into question.
DISCLOSURES
The material shown is for informational purposes only. Any opinions expressed are current only as of the time made and are subject to change without notice. This report may include estimates, projections or other forward-looking statements; however, forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities. Additionally, please be aware that past performance is not a guide to the future performance of any investment, and that the performance results and historical information provided displayed herein may have been adversely or favorably impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be inferred that these results are indicative of the future performance of any strategy, index, fund, manager or group of managers. The graphs and tables making up this report have been based on unaudited, third-party data and performance information provided to us by one or more commercial databases. While we believe this information to be reliable, SpringTide Partners bears no responsibility whatsoever for any errors or omissions.
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