Commodity prices ease as the dollar hits a fresh 12-year high

March 19, 2015 - Weekly Pricing Pulse

The IHS Markit Materials Price Index (MPI) dropped 1.7% last week on another broad-based move, led by falling oil, rubber, lumber and ferrous metals prices.

Dollar-denominated commodities were in the crosshairs last week as the dollar hit a fresh 12-year high against other major currencies. Exchange-traded commodities, which are down 11% year to date, have not seen consecutive weekly increases since June 2014.

The prospect of euro/dollar parity has captured market attention as the European Central Bank broke ground on its quantitative easing program last week. The euro is down 16% since the Federal Reserve ended its own QE program last October, but is not alone in weakening against the dollar. Since the start of 2015, diverging monetary policy (among other factors) has lifted the dollar against the Brazilian real (up 20.2%), Turkish lira (up 12.6%), Polish zloty (up 10.3%), Nigerian naira (up 8.8%), South African rand (up 6.6%), Russian ruble (up 6.3%), and Indonesian rupiah (up 5.2%).

Notably absent from this list is the Indian rupee. Stronger growth fundamentals and an improved current-account balance are helping the rupee to withstand knock-on effects from changes in US monetary policy. With all eyes on the March FOMC statement, the dollar's inexorable strength continues to add downward pressure on commodity prices.

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