As 2018 kicks off, it is good to take a step back and see where things are and where they may be headed.
Beginning with interest rates, 2017 ended with a rate hike with several more forecast for 2018. Take this into account along with a decidedly risk off environment, we’ve seen bonds/notes/interest rate products offered along with the dollar, while commodity indices are strong along with commodity currencies such as the Australian and Canadian dollar. This is aided even further as Treasury Secretary Mnuchin made comments that a weaker dollar may be good for the United States. Gold and oil have also been bid to begin the year and many look to see if agricultural markets will follow suit amid a weak dollar and increasing appreciation in commodities.
For many, commodities seem poised for a strong year as a continuation of equity and economic strength will support the current bid and have portfolios looking to diversify. Should the converse occur, with equity and economic strength faltering, commodities will again benefit as capital seeks places for uncorrelated diversification.
Also, as talks of international trade in a global market heat up, commodities priced in cheaper dollars will be more attractive for export and international trade.
Lately, a number of traders and news outlets have noted the increase in commodity indices as of late, with the CRB Commodity Index up 11% over 6 months as of yesterday.
U.S. Dollar Index Daily Chart