The war in the Middle East is the latest reminder of how commodities reshape the geopolitical landscape, putting the currencies of Norway, Canada, Australia, and New Zealand in a good position to outperform their larger rivals.
These “commodities currencies” – named for their strong correlation with the health of their respective countries’ main exports – include two of the top performers among the ten emerging market economies: the Norwegian krone and the Australian dollar, or “Aussie.”
Both have shown a growth of over 7% against the US dollar since the beginning of the year, as the conflict causes the most severe global energy disruption in history, with repercussions on economies worldwide.
Some investors see even greater potential for gains as a more fragmented global order, driven by the unilateral turn of the United States and the rise of China, pushes nations to prioritize energy security and secure essential commodities for AI development and the green transition.
Manish Kabra, a multi-asset strategist at Société Générale, noted a “major disconnect” between the relative underperformance of commodities currencies and the surge in commodity prices in recent years, leaving these currencies with substantial room for growth.
He pointed out that one of the adjustments made since the start of the Middle East conflict was to reduce exposure to the euro in favor of the four commodities currencies on an equal-weighted basis.
“The strategic and geopolitical focus on commodities is not yet priced into the valuations of these four currencies,” Mr. Kabra said.
Lauren van Biljon, a senior portfolio manager at Allspring Global Investments, recently took a long position – a bet on an asset’s value rising – on the Norwegian krone against the British pound.
As a major oil and gas producer, Norway is a pillar of Europe’s energy security, especially as it distances itself from Russian supplies due to the war in Ukraine.
Ms. Van Biljon explained that the pivot towards commodities currencies was one reason for this move, with the anticipation of a more restrictive stance by the Norwegian central bank in response to rising energy costs.
Rabobank expects the euro to weaken against the krone and also recommended selling the pound sterling against the Norwegian currency.
At around 9.37 against the dollar, the krone is trading at levels close to its highs since 2022.
Australia, Canada, and Norway all benefit from both AAA-rated sovereign debt and a net energy exporter status. Analysts say this provides investors concerned about the global status of the dollar with alternatives to the euro and yuan, amid increasing demand for commodities.
CONTEXT: The article discusses how the conflict in the Middle East is impacting commodities currencies and highlights the potential for growth in currencies like the Norwegian krone and Australian dollar.
FACT CHECK: The article accurately portrays the role of commodities in shaping geopolitical and economic landscapes, reflecting the impact of conflict on the valuation of currencies linked to commodities like oil and gas.
