The war in the Middle East is the latest reminder of how commodities are reshaping the geopolitical landscape, leaving currencies from Norway, Canada, Australia, and New Zealand well placed to outperform larger rivals.
These commodity currencies — so called due to their close correlation to the fortunes of their countries’ main export commodities — include two of the best performers among 10 developed market economies: the Norwegian crown and Australian, or Aussie, dollar.
Both are up over 7 per cent versus the US dollar for the year so far as the war creates the worst global energy disruption in history with knock-on effects for economies worldwide.
And some investors see potential for even bigger gains as an increasingly fragmented global order accelerated by the United States’ go-it-alone shift and the rise of China drives nations to prioritise energy security and secure commodities essential to the AI-buildout and green transition.
Manish Kabra, multi-asset strategist at Societe Generale, noted a “big disconnect” between the relative underperformance of commodity currencies and a booming index of commodities in recent years, leaving the currencies ample room to rally.
He said one shift he has made since the start of the conflict in the Middle East was to reduce exposure to the euro and increase exposure to the four commodity currencies on an equal-weighted basis.
“The strategic and geopolitical focus on commodities has yet to be priced into these four commodity currencies,” Kabra said.
Lauren van Biljon, a senior portfolio manager at Allspring Global Investments, said she had recently moved to a long position — a bet an asset will rise in value — on Norway’s crown against sterling.
A major oil and gas producer, Norway is a linchpin of Europe’s energy security, particularly as it weans itself off Russian supplies due to the Ukraine war.
Van Biljon said the pivot to commodity currencies was one reason for the move, another being an expectation for a hawkish Norwegian central bank given rising energy costs.
Rabobank said in a note it expected the euro to weaken against the crown and favoured selling sterling against the Norwegian currency as well.
At around 9.37 per dollar, the crown is trading near its strongest levels since 2022.
Australia, Canada and Norway boast both AAA-rated sovereign debt and net energy-exporter status. This, alongside increased focus on commodities, gives investors worried about the dollar’s global status alternatives beyond the euro and yuan, analysts said.
Commodity rally a boost, but war’s risks to growth remain
A new commodity order is taking shape, defined by geopolitical fragmentation, electrification, supply constraints, regionalisation of energy and materials markets, and a re-ordering of global supply chains, investment firm Ninety One said in a note published last week.
This may help explain the blistering start to the year for the broad commodity complex.
The asset class is by far the best performer so far this year, up roughly 42 per cent versus a 6pc gain last year, BofA research shows.
Oil has seen some eye-popping moves due to the Iran war and is trading below but near $100 a barrel, while copper is at six-week peaks. And although gold has retreated recently, it is still up some 50pc from a year ago.
SocGen’s Kabra said the US government’s decision to include copper last November in a list of minerals it deems essential for the economy and national security shows the significance of commodities in geopolitics.
The commodity currencies are, of course, vulnerable to the same worries the war will hit economic growth that have hurt their peers, and the resurgence of the US dollar as a safe haven in recent weeks has dented their appeal somewhat.
Outperformed by the US dollar at the start of the war, the Canadian, New Zealand and Australian dollars are, however, recovering on ceasefire hopes.
Mining powerhouse Australia is also a major net exporter of coal and liquefied natural gas, but relies on imports for refined oil products.
“Most important in the here and now is energy independence and energy security,” said Malin Rosengren, a portfolio manager at RBC BlueBay Asset Management, noting Australia as vulnerable on this front.
“And then the second leg of that will be the medium-term growth impact, in terms of how we’re looking at the impact of commodities on FX.”
Commodity currencies well positioned for both war and peace
Even if the Middle East conflict is resolved, energy costs are expected to stay higher for some time. Energy flows will not normalise straight away, and issues like infrastructure damage need to be addressed.
That is an opportunity to invest in commodity currencies, Van Luu, global head of solutions strategy at Russell Investments, said.
“If the oil prices are $85 to $100 instead of $65, then energy exporters in politically stable countries, if you consider Norway and Canada in that camp, should do better,” he said.
Luu said he has maintained exposure to those currencies.
No matter the outcome of current efforts to end the war, commodity currencies should remain a good bet, said Andreas Koenig, head of global FX at Europe’s largest asset manager Amundi.
While global turmoil has thrust them into the spotlight, they are also poised to benefit from a return to relative stability.
“They are still high beta currencies, and they profit from risk on,” he said.
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