Commodity Prices, the US Dollar and Commodity-Currency Returns: Directional Association, Regime Dependence and Explanatory Power

Author

Kolli Guna Chandra, Golli Mohan

Abstract

 Currencies of commodity-exporting economies are widely believed to move with the world prices of the goods those countries sell, yet the empirical record is mixed: some studies find that commodity prices predict exchange rates, others that exchange rates predict commodity prices, and the link appears to change with the US dollar, the forecast horizon and the market regime. This paper integrates these strands into one conceptual framework in which commodity price changes are linked to commodity-currency returns through a directional association, moderated by the US dollar and by regime differences, and judged by the explanatory power and stability of the relationship. Six hypotheses are tested with chi-square tests of independence, one-way ANOVA and nested multiple regressions implemented with live Excel formulas. A chi-square and Fisher exact analysis of 20 reviewed studies shows that regime dependence is strongly associated with reports of conditional or weak evidence (χ²(1) = 9.38, p = .002; Cramér’s V = 0.68), whereas commodity type is not. A simulated monthly dataset for 1995–2024 covering four commodity currencies is used to demonstrate the empirical pipeline: the commodity coefficient is positive, the dollar coefficient is negative, lagged commodity changes add no explanatory power, and commodity sensitivity is larger after 2001. The monthly results are illustrative and must be re-estimated on observed data before any empirical claim is made.

Keywords

commodity currencies; exchange rates; commodity prices; US dollar; regime dependence; chi-square; ANOVA; regression

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References

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