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Commodity currencies emerge as new safe-havens
Wed Feb 15, 2006 10:58 AM GMT


By Amanda Cooper

NEW YORK (Reuters) - Global geopolitical tensions show no sign of abating and 2006 may see the rise of a new breed of safe-haven asset, as commodity-backed currencies find favor with increasingly risk-averse investors, analysts say.

The economies of the three main commodity currency countries - Australia, Canada and New Zealand - are benefiting from the sizzling rally in raw material commodity prices, and also offer attractive interest rates.

"Commodity currencies" are those whose countries' raw material producing economies benefit when prices rise.

"I would say it's going to be more the hard currencies -- Canada and Australia. If there is a geopolitical risk or outbreak of inflation, that's where they (risk-averse investors) want to be," said Joseph Quinlan, chief market strategist at Banc of America Capital Management.

A cocktail of the war in Iraq, and Iran's confrontation with the U.N. over the potential development of nuclear weapons, along with record oil prices last summer, and a potential bird-flu pandemic, has heightened investor concern.

In times of turmoil, investors have traditionally flocked to assets that are deemed less risky like gold bullion, Swiss francs and U.S. Treasury debt.

Gold prices have risen to 25 year highs around $574 an ounce recently, and benchmark ten year U.S. Treasury bond yields remain low by historical standards, but investors are now looking for other safe havens also.

"I think 'where can I park my money and be safe?' and the safest currencies right now are the commodity-backed currencies," said Jes Black, director of research at FX MoneyTrends in Hoboken, New Jersey.

Black said that price moves in gold, which used to move in step with the Swiss franc, now serve as a proxy for commodity currency moves, which lag by about four to six months.

"What does that tell you? With gold, we think the coming strength for 2006 will be in the commodity currencies relative to all currencies," he said.

China's economic boom has been a big part of the rally in the prices of commodities such as copper, the backbone of the electronics sector, which has gained roughly 80 percent to hit record highs above $5,000 a tonne in the last year.

WORKING AGAINST THE ODDS

Even though the economies of several commodity currencies are battling the headwinds of large trade deficits and slowing growth, they still offer higher bond yields than do U.S. dollar bonds, and their value is reinforced by the demand for the currencies produced by rising demand for the commodities these countries produce.

"If there is an event in the Middle East that goes wrong, you've got something hard. These are below-the-radar screen asset classes that are very stable and secure in times of stress in that sense," Banc of America Capital Management's Quinlan said.

Gold the bulwark against inflation, has led the commodities charge and rallied virtually non-stop since 2001 to 25-year highs around $574 an ounce this year as record-breaking oil prices have fanned fears of inflation.

Gold has also profited from fears over instability in the Middle East, the world's largest source of crude oil.

"It is without a doubt in my mind the reason that gold is over $500 an ounce for the first time since 1980 or 1981. That is also a safe place to park cash,"said Chris Low, FTN Financial chief economist.

Meanwhile, the Swiss franc, a perennial safe-haven because of the country's stable political and financial environment has lost some of its edge because of its loose monetary policy.

"The Swiss franc is our favorite currency to sell, we sell it against everything," Black said, noting that it was the worst performing currency of 2005.

However, the high yielding commodity currencies may gradually lose some luster as global central banks monetary policy cycles shift.

The central banks of countries like Australia and New Zealand could start cutting interest rates in 2006, while others such as Switzerland may raise rates, thereby limiting the advantage of some commodity currencies.

Interesting reading Hilary. There are lots of messages in there I think.

Oh, and thanks for the Big Mac.

I prefer a Whopper myself, Harlosh.

:o)

Hilary, now understand your post on 4796, Pat Gardner likes a whopper too!

I found it interesting that the bloke from FX Money Trends was shorting the pants off the Swissie. The Big Mac Index shows it to be the most overvalued currency.

Now where can I get some Thai Bhats?

hilary, probably buying a place to trade from in thailand wouldnt b a silly idea at the moment, also thought it was interesting what they said about comodity currencies, aud/usd looking interesting

notice they dont include spanish big macs in your survey, heard they were pretty disgusting

goforit: That would be a EuroMac -- which does indeed sound disgusting.

Just need the Calender ,small short on Cable

It's reportedly a UK clearer who's sold it down this morning, Divetime. They reckon demand could emerge around 1.74 and it looks to be moving into an uptrend on the hourlies.

Thank`s hilary,out with small profit.

08:02 EUR/USD: Good bids Ahead of 1.1900, stops Under 1.1885] London, Feb 22.
With German growth data showing an unchanged 0.0 return for the fourth quarter
of 2005 the EUR got off to a soft start in Europe. The Asian market peaked at
1.1930 after the EUR based at levels around 1.1905 at the North American close.
Price action remains tight with the week not really off the mark following the
US holiday.
The German data has been slightly offset by French business sentiment and
consumer spending numbers, which have bettered market expectations. The EUR fell
to 1.1907 from early European highs around 1.1928 but has bounced back to
1.1917, where small offers have held the rise.
Talk in the market of good-bids in the 1.1900-10 area and stops under 1.1885.
The EUR has been hemmed in by orders since last week"s 1.2025-1.1890 fall and
the market appears unsure of direction.
Clouding direction is the on-going second guessing over US monetary policy and
the thorny issue of inflation. Some Fed officials still see US inflation too
high, according to the WSJ. Fed"s Fischer has made it clear what he thinks of
the inflation threat and sees very strong growth in Q1. US CPI data id due at
13:30 GMT.

Hopefully after 09.30 we should see sum movement ,was a bit slow yesterday.

Pleased with that - took 28 on the 9.30 spike up in 5 seconds.

Well done Maggot,I am staying long at the moment.

Nice one Maggot :)
Now it's exhausted.

Well I'm shorting the reaction.

edit: If it's nfg, worst case I'll be out flat.

Weird - just had a hanging yellow ticket and eventually a grey ticket with: Cancelled - Call dealing desk to trade. Blimey - for a 1 bet!!!

Yes - again unable to put on-line trades on forex with cmc. That's cost me another 25 points at least.

Maggot,

I don't know why you even bother with them. There's a herd of sheep on the other thread who don't want to listen and who come up with silly excuses.

It's time to move on.

wedge or pennant on the 5mins cable

My BPH6 now back in profit