Will The US Dollar Rally Further?
In case you haven’t noticed, the Greenback is soaring…
The US Dollar index has exploded from 80 in early July to nearly 84 as of last night’s close. That’s a hefty 4.4% rally for an index that has essentially traded sideways since last October.
Take a look…
As you can see, the Greenback is advancing quickly. Ever since Federal Reserve Chairwoman Janet Yellen announced US interest rates will likely start rising in early 2015, investors have piled into the world’s reserve currency.
Speaking of reserve currency…
Commodities are suffering in the face of this dollar explosion. Remember, hard assets tend to move inversely to the US Dollar. In other words, when the dollar rallies, commodities weaken.
Looking at the performance of gold, silver, and oil over the past two months, we find this inverse correlation is as strong as ever…
Without a doubt, it has been tough sledding for commodity bulls since early July. Gold is down 4.4% while silver and crude oil are down 9.8% and 9.1% respectively.
Will the US Dollar rally further?
In spite of the Greenback’s already hefty summer gains, there’s a good chance the currency continues higher in coming months.
Why?
The European Central Bank (ECB) announced another interest rate cut and new stimulus plans yesterday. With the Eurozone economy experiencing weak inflation and stumbling growth, ECB President Mario Draghi is taking action.
Of course, the news sent the Euro off a cliff…
The Eurozone currency sank to a 14-month low versus the US Dollar in yesterday’s trading session. As investors continue pricing in the imbalance between US and European growth, we’ll likely see further weakness for the Euro.
What do these currency moves mean for commodity investors?
As I stated earlier, the rising US Dollar is a definite headwind for commodities. With the world’s reserve currency gaining value, it takes fewer of them to buy the same amount of hard assets on international markets.
As long as the dollar continues gaining steam, we’ll likely see continued lackluster performance from the hard asset sector in coming weeks.
But keep in mind…
Commodities can only drop so far before they become too cheap relative to their supply/demand fundamentals. That’s why I’m always on the lookout for low risk buying opportunities.
Stay tuned to Commodity Trading Research for continued insight on when and where to buy important commodities like oil, silver, and gold!
Until Next Time,
Justin Bennett
Category: Commodity Trading
