Commodity prices

Commodities are the driving force of growing economies. China has emerged as a major player in worldwide manufacturing and has become a large consumer of commodities such as oil and grains. Surprisingly, however, China does not produce much in the way of agriculture, so commodity based economies that stand to export heavily to China, such as Australia, New Zealand and Canada, will benefit. It shows how the U.S. dollar/Canadian dollar (USD/CAD) rate is inversely related to commodity prices, meaning the CAD gets stronger relative to the USD as commodity prices rise. Below the price chart is a list of several statistical correlations between the two series over different time periods (five days, 10 days, one month, etc.). Negative cor relation figures reflect data series that move in opposite directions, with 1.00 representing a perfectly inverse relationship (one goes up while the other goes down proportionally).

Positive correlation figures reflect the opposite, with +1.00 representing two series moving in tandem.

Another notable historical relationship is the impact of rising oil prices on Japan, represented by the Nikkei stock index and the Japanese yen (JPY).

Higher oil prices have a negative impact on global economic growth as a whole, and Japan specifically because it is highly dependent on imported oil.

With oil prices rising significantly over the past year, the impact on both Japan and the global economy has been noticeable. And when global economic growth is poised to slow, in this case because of higher oil prices, Japan typically suffers.

Given a large percentage of Japan’s capital inflows are the result of equity purchases, the link between higher oil prices and a weaker yen and Nikkei is clear. If global economic growth is waning, Japan will be negatively impacted because they are a large exporter. Hence, equity inflows into Japan will decrease when growth slows or is expected to slow — and rising oil prices have been an impediment to global growth. It shows Brent crude oil and the euro/Japanese yen (EUR/JPY) rate, along with various correlation figures.