15 Apr 2014
Can commodities predict currencies? - Deutsche Bank
In a day where Aussie was dragged lower by falling gold prices, Deutsche Bank released an interesting paper where they claim to have found “stronger evidence that currencies can help predict commodity prices rather than vice versa.”
Which affects which?
According to the bank, the correlations albeit unable to offer immediate results for currency forecasters, indeed can help improve commodity forecasts. Here is what the bank believes traders should keep an eye on: “We find that NZD can help predict sheep prices, AUD and CAD can predict coking coal, while CAD also has predictive power over the BoC metals index. Overall, the NZD has the tightest relationship with commodities in both directions of causality.”
Adding also that “…commodities lead FX. On an intra-day basis we find that gold and oil prices have leading properties over CAD and AUD. Commodities may not offer extra forecasting power for currencies at low frequencies, but there may be value in following intra-day price moves.”
Which affects which?
According to the bank, the correlations albeit unable to offer immediate results for currency forecasters, indeed can help improve commodity forecasts. Here is what the bank believes traders should keep an eye on: “We find that NZD can help predict sheep prices, AUD and CAD can predict coking coal, while CAD also has predictive power over the BoC metals index. Overall, the NZD has the tightest relationship with commodities in both directions of causality.”
Adding also that “…commodities lead FX. On an intra-day basis we find that gold and oil prices have leading properties over CAD and AUD. Commodities may not offer extra forecasting power for currencies at low frequencies, but there may be value in following intra-day price moves.”