Single-commodity examples

South Africa is a major producer and exporter of a number of minerals, but it is most famous for its gold production.

However, if we wish to attribute the movements of the ZAR to gold prices, we have the same causation problem noted in the CAD-AUD discussion namely, it is very difficult indeed to cause something in the past.

The ZAR plunged in 1999-2001 and then rallied most sharply into the end of 2004. It has been range bound since, and has virtually ignored the largest part of the gold rally.

Is a better linkage available via the interest-rate comparison? Yes. The ZAR spot rate lagged nine months leads the six-month normalized rate gap between the ZAR and the USD. Rate differentials for six months are set, and when the standard three month non-deliverable forward is unwound, it corresponds closely to the interest-rate differential. We have to conclude it is a misnomer to call the ZAR a commodity currency.

What about the relationship between the CLP and copper?

We see that exact same non-causal relationship as we did with the ZAR and gold. The CLP took off in the aforementioned May 2003 time frame. This was well in advance of copper prices and especially well in advance of copper’s huge run in March-April 2006. Although the Chilean money markets do not lend themselves to a direct interest-rate comparison, and therefore preclude the direct conclusion made for the ZAR, the pattern is similar. We should hesitate to call the CLP a commodity currency. Finally, we come to the most interesting case of all.

Perhaps no country has benefited more from the surge in crude oil prices than Russia. This is a country that defaulted on its debt in 1998. If we compare the course of the RUB to the price of North Sea Brent crude oil after May 2003, we find a linkage that is getting tighter with time. As the Russian money markets do not lend themselves to the LIBOR comparison, we cannot make it. We can offer by visual inspection the conclusion the RUB is as close to a major petro currency as we are going to find.