2 years, 3 months ago
How does a strong dollar affect the commodity market?
Can a commodity bull continue to exist as the dollar gains in strength?
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M$1 Answer
How does a strong dollar affect the commodity market?
A strong dollar has an affect on the commodity market by lowering commodity prices , lowering interest rates and high bond prices.
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THE DOLLAR MOVES INVERSELY TO COMMODITY PRICES
A rising dollar is noninflationary. As a result a rising dollar eventually produces lower commodity prices. Lower commodity prices, in turn, lead to lower interest rates and higher bond prices. Higher bond prices are bullish for stocks. A falling dollar has the exact opposite effect; it is bullish for commodities and bearish for bonds and equities. Why, then, can't we say that a rising dollar is bullish for bonds and stocks and just forget about commodities? The reason lies with long lead times in these relationships and with the troublesome question of inflation.
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Information quote from http://www.sentracommerce.com/
Can a commodity bull continue to exist as the dollar gains in strength?
No. Once the dollar gains strength it causes a bullish bond market while the commodity market remains bearish
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COMMODITY PRICE TRENDS-THE KEY TO INFLATION
Turns in the dollar eventually have an impact on bonds (and an even more delayed impact on stocks) but only after long lead times. The picture becomes much clearer, however, if the impact of the dollar on bonds and stocks is viewed through the commodity markets. A falling dollar is bearish for bonds and stocks because it is inflationary. However, it takes time for the inflationary effects of a falling dollar to filter through the system. How does the bond trader know when the inflationary effects of the falling dollar are taking hold? The answer is when the commodity markets start to move higher. Therefore, we can qualify the statement regarding the relationship between the dollar and bonds and stocks. A falling dollar becomes bearish for bonds and stocks when commodity prices start to rise. Conversely, a rising dollar becomes bullish for bonds and stocks when commodity prices start to drop.
----quote----
Information quoted from http://www.sentracommerce.com/
A strong dollar has an affect on the commodity market by lowering commodity prices , lowering interest rates and high bond prices.
----quote----
THE DOLLAR MOVES INVERSELY TO COMMODITY PRICES
A rising dollar is noninflationary. As a result a rising dollar eventually produces lower commodity prices. Lower commodity prices, in turn, lead to lower interest rates and higher bond prices. Higher bond prices are bullish for stocks. A falling dollar has the exact opposite effect; it is bullish for commodities and bearish for bonds and equities. Why, then, can't we say that a rising dollar is bullish for bonds and stocks and just forget about commodities? The reason lies with long lead times in these relationships and with the troublesome question of inflation.
----quote----
Information quote from http://www.sentracommerce.com/
Can a commodity bull continue to exist as the dollar gains in strength?
No. Once the dollar gains strength it causes a bullish bond market while the commodity market remains bearish
----quote----
COMMODITY PRICE TRENDS-THE KEY TO INFLATION
Turns in the dollar eventually have an impact on bonds (and an even more delayed impact on stocks) but only after long lead times. The picture becomes much clearer, however, if the impact of the dollar on bonds and stocks is viewed through the commodity markets. A falling dollar is bearish for bonds and stocks because it is inflationary. However, it takes time for the inflationary effects of a falling dollar to filter through the system. How does the bond trader know when the inflationary effects of the falling dollar are taking hold? The answer is when the commodity markets start to move higher. Therefore, we can qualify the statement regarding the relationship between the dollar and bonds and stocks. A falling dollar becomes bearish for bonds and stocks when commodity prices start to rise. Conversely, a rising dollar becomes bullish for bonds and stocks when commodity prices start to drop.
----quote----
Information quoted from http://www.sentracommerce.com/
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M$
Explain how a strong dollar lowers interest rates on Bonds. My understanding is a strong dollar means higher yield rates on bonds.
A strong dollar increases the buying power of commodities. If a commodity is sold locally does the correlation exist, but if sold globally will the commodity price adjust to the new imbalance in price of the currencies?
Bond Price would drop as the dollar gains in strength.