Commodity Currencies Struggle Amid Weaker Dollar

A less hawkish Federal Reserve has weakened the US Dollar but failed to spark sustained interest in commodity currencies, notes BNY's Geoff Yu. Currencies such as the Norwegian Krone (NOK), Australian Dollar (AUD), and Emerging Markets (EM) currencies like the Chilean Peso (CLP), South African Rand (ZAR), and Brazilian Real (BRL) have struggled to gain traction.

High nominal interest rates in Australia and Norway are offset by issues related to stagflation and productivity. In South Africa, policymakers prioritize global growth over carry performance. The recent Iran conflict has stabilized, allowing commodity-linked economies to reconsider earlier easing paths and prevent real rates from widening again.

The Reserve Bank of Australia and Norges Bank maintain the highest nominal interest rates in G10, but idiosyncratic risks remain too high to generate a sufficient front-end real-rate gap vs. USD. BNY warns against chasing the weaker-dollar commodity trade until flows confirm a broader growth recovery, not just easier Fed expectations.