Commodities and Currency Exchange Rate

According to Bloomberg currencies of commodity exporters are falling as raw material demand from China falls off.

Currencies of commodity-exporting nations including Australia fell as a gauge of raw materials slid to a five-year low on speculation demand will drop after China signaled slower economic growth.

The Australian dollar sank to a seven-month low against its U.S. counterpart, dropping against most of its 31 major peers. South Africa’s rand and Brazil’s real weakened, and an index of emerging-market currencies reached the lowest level since 2009.

Commodities and currency exchange rate are connected because a major source of income for nations like Brazil, South Africa and Australia is selling their raw materials to nations like China. As the Chinese economy slows so do those of their raw material suppliers and commodities and exchange rate are so connected that the real, rand and Aussie dollar are taking a hit as well.

Australia Coal Exports and Pollution Control Efforts in China

The Sidney Morning Herald notes that there is an Australian export risk due to an impending ban on dirty coal in China.

Australian coal exporters are scrambling to clarify the fallout from changes to China’s coal import rules, which could expose the industry to billions of dollars in lost sales as China seeks to cut air pollution.

The Chinese government is to limit the use of imported coal with more than 16 per cent ash and 3 per cent sulfur from January 1, 2015, in a bid to improve air quality, especially in the major cities such as Beijing and around Shanghai.

Apparently only issue tying commodities and exchange rate for the Aussies is not just a fall of in Chinese manufacturing. Pollution in major Chinese cities has become a big issue and may be a driving force to reduce imports of low quality coal. The net effect for Australia either way will be a reduction in exports and a hit to the AUD.

Trading Exporter Currencies

The Financial Times reports that the export dip weighs on Australian growth.

Australia’s economy slowed in the three months to end of June as a dip in exports cooled growth that had reached its fastest pace in two years during the previous quarter.

Official figures on Wednesday showed gross domestic product had risen 0.5 per cent in the second quarter, slightly above analysts’ expectations but below the 1.1 per cent rate recorded three months earlier.

Year-on-year growth moderated to 3.1 per cent over the financial year to June 30, against 3.5 per cent in the previous quarter, according to the Australian Bureau of Statistics.

A ten percent fall in economic growth is sufficient to drag down the value of the Aussie dollar because of the connection of commodities and currency exchange rate.

Trading Exporter Nation Currencies

To profit in Forex trading from the connection between commodities and currency exchange rate the trader needs to follow the world of commodities and commodity trading. Many times options traded on commodities give a hint as to where commodity values are going. And knowing who produces what and who they sell it to will help a trader make money in the world of commodities and currency exchange rate fluctuations.