Commodity Currencies Struggle as Dollar Weakening Fails to Spark Sustained Bid

The recent Federal Reserve decision has weakened the US Dollar, but its impact on commodity currencies has been short-lived. According to BNY's Geoff Yu, the lack of a sustained bid in Norwegian Krone (NOK), Australian Dollar (AUD) and Emerging Markets (EM) currencies such as Chilean Peso (CLP), South African Rand (ZAR) and Brazilian Real (BRL) is due to high nominal rates in Australia and Norway being offset by stagflation and productivity issues.

Yu notes that even before last Friday's payroll numbers, iFlow showed dollar hedges rising again. This meant mean reversion was already overdue, but the Fed decision and subsequent 'credibility' narrative accelerated the process. Yu views extreme positioning as an amplifier of price action, and the Dollar is adjusting accordingly.

There has been no sign of a broad commodity move to revive the 'debasement' trade that dominated markets in January and February. In FX, clean commodity currencies such as NOK, AUD, and an EM basket of CLP, ZAR, and BRL have not seen a single session where the entire group was net bought; by a week later, aggregate flows were again moving toward net selling.

The Reserve Bank of Australia and Norges Bank retain the highest nominal rates in G10, but idiosyncratic risks remain too high to generate a sufficient front-end real-rate gap vs. USD. Meanwhile, as the Iran conflict has broadly stabilized in market terms, commodity-linked economies are more willing to return to earlier easing paths and prevent real rates from widening again.