AUD and commodity prices

Below is an interesting read on the correlation of AUD currency and commodity prices.
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DailyFx: The Australian dollar has fallen significantly through recent currency trading, as the highly commodity-sensitive currency continue to trade lower on a similar tumble in gold and other commodity prices. The Reuters/Jefferies CRB index registered its single-largest daily loss since March—driven by a $4.30 dive in crude oil futures. Given that the Australian Dollar previously rallied to post-float record highs on similar heights in major commodity markets, it is perhaps little surprise to see the AUDUSD fall significantly on the recent downturn. In fact, the Australian Dollar currently holds its strongest year-long correlation to the CRB Index since the currency’s free-float in 1984.
A cursory look at year-to-date charts comparing price action in the Australian Dollar and the CRB Index only emphasizes this point, and we see that the currency remains highly sensitive to the trajectory of the widely-followed commodities benchmark index.

A year-to-date regression on the Australian Dollar and Gold Prices suggests that the Australian Dollar stands to lose 0.25 percent for every 1 percent drop in the COMEX Gold contract.


Given such a dynamic, it will be more important than ever to monitor day-to-day changes in gold and other commodity standpoint for the Australian dollar trader. A shift in the secular uptrend for Gold Prices could lead to a similar shift in long-term trends for the Australian Dollar—leading it sharply lower against its US namesake.

* The KLCI dropped 20 points or 1.7% at mid-day today as major plantation stocks were under selling pressure again due to a big selldown in crude oil (below USD120 per barrel) and the Reuters/Jefferies CRB Index. Plunging prices for cocoa, natural gas and sugar sent the CRB Index of 19 commodities to its biggest one-day decline since March. The CRB index fell 3.4 percent to 401.98, which marks the largest slide since March 19. The gauge dropped to the lowest level since May this year.

* BT: Malaysia plans to use 500,000 tonnes of crude palm oil from its swelling inventories in the next 2-3 months to produce bio diesel to boost faltering prices of vegetable oil.

* BT: Foreign participation in the 1st half of trading(in terms of value) in Bursa is 42%(2007: 37%) Foreign ownership unfortunately has gone down to a low 20% (2007: 25%). As such, foreigners were net sellers for the 1st half of the year.

* Wall Street widely expects the Fed to keep interest rates unchanged tonight as the central bank grapples with a faltering economy, shakey financial system and higher prices.

* Bloomberg: Indonesia's central bank raised its benchmark interest rate for a fourth straight meeting to tame inflation. The interest rate has been raised to 9% after a 0.25% rise.

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* Poor banking results- HSBC(Europe's largest bank by market value) drop 27% in 1Q profit to USD7.7B on US defaults. Societe Generale 's profit falls 63% in the 2nd Q write downs on investment losses. Mitsubhishi UFG's profit declines by 66% as bad loan costs soared.