The weak dollar and strong commodity prices will surely persist throughout the first quarter of 2019. There are numerous fundamental facts that allow the cycle to continue every year.
* Commodity prices will increase as a result of weather conditions due to the winter period in the northern hemisphere. The cold winter period allow oil, gas and coal to increase as countries use these commodities to produce heat in the cold period. Furthermore, high commodity prices for example oil and natural gas, lead to higher inflation (CPI). As CPI statistics increase during the first quarter of every year, Gold and Silver prices which are directly linked to high inflation also increase. As a consequence of higher commodity prices, commodity led countries with their economies also benefit due to the annual commodity transition. Countries blessed with these natural resources are Australia, New Zealand, Canada and South Africa. As a result their respective currencies will become high in demand.
* The increase demand of commodity prices, increase the purchases of commodity currencies which are CAD, NZD, AUD and the RAND (ZAR). Yes, there are other commodity currencies for example Russian Ruble and the Norwegian Krone, but I normally only focus on CAD, NZD and the AUD as it makes life easier due to the spread cost. In addition these commodity currencies normally increase in the first quarter of every year as a result of the winter in the northern hemisphere. The trend normally persist throughout until the winter period dissipates.
Lastly, the USD is normally very weak during the winter period and lifts commodity prices /commodity currencies higher. Also the market become “ risk-on” and leave safe haven currencies like the JPY as well. Which means USD and JPY become simultaneously weak against commodity currencies.
Please be aware of adverse shocks in the market, that may knock commodity currencies of the rail. But at all time, commodity currencies normally recover strongly and keep the trend until the end of March
Have an excellent Trading plan for the first quarter of 2019!