Abstract
In this study, the relationship between movements in the exchange rates of five commodity currencies (Australia, Canada, Chile, China, and South Africa) in terms of the United States Dollar (USD) and the spot USD copper price was analysed. Correlation and regression analysis (including the use of lagged variables) was used to investigate these relationships. It was found that four of the five commodity currency exchange rates have a strong co-movement relationship with copper price (i.e. the Australian Dollar, Canadian Dollar, Chilean Peso, and the South African Rand). The only exchange rate that does not have a co-movement relationship with copper prices is the Chinese Yuan. This article is based on a master’s minor dissertation study.
Highlights
“Though we see a world of change and contrast all about, it’s one of the ancient esoteric insights that all is One
The study explored the relationship between the movements in the selected commodity currencies' exchange rates with respect to the United States Dollar (USD) and movements in the price of a commodity over a period of five years, namely from June 2006 to August 2011, using daily data for both the exchange rates and the commodity price
The secondary data used for the study to investigate if there is a relationship between the real price of a commodity and the real exchange rates of the commodity currencies (AUD/USD, Canadian Dollar (CAD)/USD, Chilean Peso (CLP)/USD, CAD/USD and ZAR/USD) was the following: For the correlation analysis, the daily spot USD value of a tonne of copper as well as the daily value of the Australian Dollar (AUD)/USD, CAD/USD, CLP/USD, CNY/USD, and the ZAR/USD exchange rates were used
Summary
“Though we see a world of change and contrast all about, it’s one of the ancient esoteric insights that all is One. If demand were to increase for a product, the price would increase, which is followed by an increase in supply These changes in demand and supply occur until a level of equilibrium is achieved, which supports the principle of the law of one price (Copeland, 2008). As the law of one price and the law of supply and demand are the underlying economic principles that influence the supply and demand for products, they should apply in the currency market, as exchange rates are financial products (Copeland, 2008). It can be argued that there is a relationship between commodity prices and exchange rates based on the underlying economic principles of the law of one price and the law of supply and demand. The equal relationships found in exchange rates and commodity prices indicate an interlinking relationship between commodity prices and exchange rates
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