Strategists at BMO Capital Markets said that the zero tolerance policy for coronavirus in China, as well as broader economic conditions, could negatively affect currencies, which should be supported by rising commodity prices.
Since the beginning of the year, commodity currencies such as the Norwegian krone and the Australian, New Zealand and Canadian dollars have been relatively restrained, despite the rise in oil prices to the highest level since the end of 2014.
Greg Anderson, global head of currency strategy at BMO, said that central banks associated with these currencies were less hawkish in 2022 than the Fed, but this only partially explains this discrepancy between commodity prices and commodity currencies.
Meanwhile, Stephen Gallo, head of the European monetary strategy department, suggested that the ripple effects of China due to its policy on coronavirus may put pressure on the dynamics of commodity currencies of developed countries. "The zero tolerance policy for coronavirus in China has implications for both supply and demand, but may well affect China's demand for certain types of raw materials," Gallo said.
Gallo noted that data from China indicate slower nominal growth rates of imports of certain goods, while import growth was more subdued than export growth.
"Perhaps the economic background in China has only a partial impact on commodity prices. Perhaps there is also an element of transition to a "green" economy in the prices of energy carriers and base metals. Perhaps the equilibrium prices of some goods are simply changing," Gallo said.