BNY's Geoff Yu highlights that although a less hawkish Federal Reserve has led to a weaker US Dollar, this shift has not resulted in sustained buying interest for commodity-linked currencies such as the Norwegian Krone (NOK), Australian Dollar (AUD), and a basket of emerging market currencies including the Chilean Peso (CLP), South African Rand (ZAR), and Brazilian Real (BRL) [1]. Despite high nominal interest rates in Australia and Norway, these currencies are weighed down by stagflation and productivity challenges, limiting their appeal relative to the US Dollar [1].
Yu notes that even before the latest US payroll numbers, dollar hedges were rising, and extreme positioning has amplified price action, with the dollar adjusting accordingly after the Fed's decision and the subsequent 'credibility' narrative [1]. In the week following the Fed's announcement, there was not a single trading session where the entire group of commodity currencies was net bought; by the following week, aggregate flows had shifted toward net selling [1].
The Reserve Bank of Australia and Norges Bank continue to offer the highest nominal rates among G10 central banks, but idiosyncratic risks prevent these currencies from establishing a meaningful real-rate advantage over the USD [1]. Meanwhile, as geopolitical tensions such as the Iran conflict have stabilized, commodity-linked economies are reverting to earlier easing paths to avoid widening real rates. South Africa exemplifies this trend, with its central bank surprising markets by holding rates in July and maintaining a forward-looking bias, as expectations of weaker inflation open the door to a policy pivot [1].
Yu advises caution, stating that investors should not chase the weaker-dollar commodity trade yet. He recommends keeping commodity FX and emerging market duration exposure selective until flows confirm a broader growth recovery, rather than relying solely on easier Fed expectations [1].
CONCLUSION
Commodity currencies have failed to capitalize on a weaker US Dollar due to persistent growth constraints and idiosyncratic risks. Market flows remain cautious, with net selling dominating despite high nominal rates in Australia and Norway. Investors are advised to remain selective in their exposure until broader growth recovery is evident.