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Industrial Commodities and the Canadian Loonie

ECRI’s Lakshman Achuthan joined BNN Bloomberg TV to discuss global growth prospects, commodity price inflation and the Canadian loonie.

According to our cyclical research, the upturn in commodity price inflation is far from convincing.

Overall industrial commodity price growth had gone substantially negative late last year, as ECRI had predicted. Since then, exchange-traded commodity price growth has recovered to about flat, but the revival in non-exchange traded commodity price growth has been much more muted.

In other words, the bulk of the recovery in industrial commodity price growth – which had been negative – has come from exchanged-traded commodity prices, as part of the overall risk-on move this year.

This chart shows how non-exchange-traded commodity price growth tends to lead the USD/CAD exchange rate, which will remain under pressure for the time being.
This is because non-speculative industrial commodity price inflation is related to the value of the Canadian dollar, which is perceived to be a “commodity currency.”

Bottom line: Continuing cyclical weakness in industrial commodity price growth is holding the loonie down.

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