LAUNCESTON, Australia, Sept 15 (Reuters) – The pressing problem for some resource-rich countries isn’t that prices for commodities have dropped sharply, it’s that their currencies haven’t dropped in tandem.
The plight of Australia and Indonesia, the major commodity exporters in the Asia-Pacific region, is driven home by the fact that their currencies have actually gained against the U.S. dollar this year, even as commodity prices have plunged.
This is a body blow to earnings in those countries and defies both economic logic and precedent, which should have seen the Australian dollar and Indonesian rupiah start to drop as revenue from resource exports declined.
While the Australian dollar did slip almost 4 U.S. cents last week to trade around 90 cents early on Monday, it is still stronger than it was at the end of last year, when it fetched 89.03 cents. In contrast, Australia’s two major export earners, iron ore and coal, have dropped dramatically. Spot Asian iron ore .IO62-CNI=SI has fallen 39 percent so far this year, hitting $82 a tonne on Sept. 12, a five-year low.
Thermal coal at Australia’s Newcastle Port, an Asian benchmark, dropped to $66.07 a tonne in the week ended Sept. 5, a five-year low and down 23 percent from the start of the year. What is clear is that commodity currencies have failed to respond this year to weaker commodity prices in the way they did in the 2008 global recession.
CORRELATION BREAKDOWN
When Newcastle coal dropped from its record high of $194.79 a tonne in July 2008 to $60.30 by March 2009, the Australian dollar dropped from 97 cents to near to 60 cents between July and October 2008.
However, as coal and iron ore prices recovered, the Australian dollar rallied with them.
Coal more than doubled from its 2009 low to reach $136.30 a tonne by January 2011, while iron ore went from $59.50 a tonne in October 2008 to $191.90 by February 2011.
The Australian dollar rose some 83 percent from its 2008 low to reach a record high of just above $1.10 by July 2011.
If the relationship between coal, iron ore and the Australian dollar in the 2008 crash and recovery had been replicated in the present commodity price weakness, the Australian currency should be somewhere around 75 U.S. cents.
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