Commodity markets are rewriting the logic of currency pricing, and the global foreign exchange landscape is facing a reshaping!
The reshaping of the Middle East situation is reconfiguring the energy supply chain, with commodities increasingly becoming the pricing anchor for foreign exchange markets. The Norwegian krone and the Australian dollar have shown resilience and strengthened against the trend due to their resource advantages. Amid global order fragmentation, resource endowments are rewriting currency rankings and triggering a paradigm shift in pricing logic.
The conflict in the Middle East has once again reminded the world how commodities can reshape the geopolitical landscape, placing currencies from Norway, Canada, Australia, and New Zealand in a favorable position to outperform major counterpart currencies.
These assets, referred to as “commodity currencies,” are closely tied to the performance of each country’s primary export commodities. Among ten developed economies, the Norwegian krone and the Australian dollar have performed the most strongly. The conflict, which has caused the most severe global energy disruption in history and triggered ripple effects across the global economy, has driven the Norwegian krone and the Australian dollar to appreciate by more than 7% against the US dollar year-to-date.
Valuation Rebound Driven by Energy Security
Some investors believe that these currencies have further upside potential as the global order becomes increasingly fragmented. The United States’ shift toward unilateralism has prompted countries to prioritize energy security and actively stockpile commodities essential for artificial intelligence (AI) development and the green transition.
Manish Kabra, multi-asset strategist at Societe Generale, pointed out that there is a “significant disconnect” between the recent relative weakness of commodity currencies and the surge in commodity indices, leaving ample room for these currencies to recover. He stated that since the outbreak of the Middle East conflict, he has reduced his allocation to the euro and instead equally weighted increased exposure to four commodity currencies. Kabra believes: “The strategic and geopolitical importance of commodities has not yet been fully reflected in the pricing of these commodity currencies.”
Lauren van Biljon, senior portfolio manager at Allspring Global Investments, said she recently turned bullish on the Norwegian krone against the British pound. As a key producer of oil and gas, Norway serves as the cornerstone of Europe’s energy security, particularly following the Russia-Ukraine conflict, which led Europe to reduce its dependence on Russian energy.
Van Biljon explained that her decision was driven partly by optimism about commodity currencies, and partly by expectations that the Norwegian central bank will adopt a hawkish stance amid rising energy costs. Rabobank also noted in a report that it expects the euro to weaken against the Norwegian krone and favors selling the British pound against the Norwegian krone.
Currently, the Norwegian krone trades at approximately 9.37 against the US dollar, reaching its highest level since 2022. Australia, Canada, and Norway not only hold AAA sovereign credit ratings but are also net energy exporters. Analysts note that while commodities remain highly sought after, these countries provide alternative options for investors concerned about the international standing of the US dollar.
A New Order Is Emerging
In a recent report, investment firm Ninety One stated that a new commodity order defined by geopolitical fragmentation, electrification, constrained supply, and regionalization of energy and materials markets is taking shape. This explains the strong start to the year for the commodities sector.
According to Bank of America research, this asset class has been the best-performing asset so far this year, with an increase of approximately 42%, significantly higher than last year’s 6%. Affected by the conflict in the Middle East, crude oil prices have experienced significant fluctuations and are currently hovering around $100 per barrel; copper prices have reached a six-week high; although gold has retreated recently, it is still 50% higher than a year ago.
Cabral pointed out that the U.S. government classified copper as a mineral crucial for economic and national security in November last year, underscoring the importance of commodities in geopolitics. Of course, commodity currencies are also vulnerable to the impact of conflicts on economic growth, and the recent recovery of the U.S. dollar as a safe-haven asset has weakened their appeal. However, with hopes for a ceasefire rising, the Canadian dollar, New Zealand dollar, and Australian dollar are rebounding from their early slump caused by the conflict.
As a mining powerhouse, Australia is a major net exporter of coal and liquefied natural gas but relies on imports for refined oil products. Malin Rosengren, a portfolio manager at RBC BlueBay Asset Management, noted that energy independence and security are currently the most critical issues, and Australia exhibits vulnerabilities in this regard.
Even if the conflict in the Middle East is resolved, energy costs are expected to remain high for some time. Van Luu, Global Head of Solution Strategies at Russell Investments, believes: ‘If oil prices stay between $85 and $100 instead of $65, energy exporters in politically stable countries will perform better.’
Andreas Koenig, Global Head of Foreign Exchange at Amundi, Europe’s largest asset management company, also believes that regardless of the outcome of peace talks, commodity currencies remain a good choice. While global turmoil has brought these currencies into the spotlight, they can also benefit from a return to stability. He stated: ‘These currencies still have a high beta coefficient and can profit from the return of risk-on sentiment.’
