The U.S. dollar index hit a nine-week high this week, making U.S. exports more expensive to purchase in non-U.S. currency. Given that most major raw commodities on the world market are priced in U.S. dollars, the appreciating greenback is a bearish element for many raw commodity futures markets. It makes those commodities more expensive to purchase in non-U.S. currency. Ironically, near-term fluctuations in the USDX have more daily impact on futures markets than actual U.S. product exports. Changes in exchange rates also influence credit conditions for exporters, so there’s a lag effect on actual exports of at least a few months. An overall hawkish Federal Reserve has been a bullish element in the greenback’s rise. This week’s FOMC minutes did little to refute a hawkish Fed—even though most market watchers do expect the FOMC to pause in its rate-hike cycle at its June meeting. Some are calling for June’s FOMC meeting to show a “hawkish pause.” Look for more upside for the greenback in the near term. Stay tuned! Jim Wyckoff
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