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Currencies and commodities that the coronavirus can't shake

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For as long as the coronavirus remains uncontained and volatility lingers in financial markets globally, there are at least two currencies that will continue to strengthen.

Benjamin Ong, director of economics and investments at Rainmaker Information, publisher of Money magazine, says the US dollar will remain well bid for during the pandemic. He says while this might sound counterintuitive because the US is now most affected by COVID-19, investors regard US treasury bonds as a safe haven and this lifts demand for the USD.

"The greenback will weaken once global growth bottoms; the pandemic is contained; or financial market volatility eases, encouraging funds away from safe-havens and to start flowing into relatively riskier markets," says Ong.

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The Japanese yen is also considered a safe-haven currency that appreciates in times of financial market upheavals. Ong points out that the yen has strengthened versus the strong USD this year, reaching a near four-year high of ¥102.36 in early March.

The economist says the Australian dollar will "remain under downward pressure given the sharp contraction and or recession in the global economy and its consequent impact on commodity prices". However, recent improvement in China, if sustained, could underpin commodity prices and limit pressure on the AUD.

Amid the coronavirus pandemic, Ong says currencies such as the Euro and British pound (GBP) will generally be byproducts of the USD and yen as there's little to distinguish between the currencies when it comes to factors such as interest rates, growth and inflation.

Moving to commodities, it's important to note that for the first time in history oil producers are paying to have oil taken from them. The Western Texas Intermediate (WTI) oil futures prices for May delivery dropped to minus US$35.30 a barrel in late April. This is because the producers have run out of facilities to store oil.

Ong says OPEC's (Organisation of the Petroleum Exporting Countries) agreement to cut production starting May 1 would help limit oil supply.

"So too would reduced production (even shutdowns) from US shale producers - some operations become unprofitable at current prices," says Ong.

However, the impending global recession as well as ongoing factory lockdowns (due either to government mandate, or staff absences (due to fear of getting infected), or broken supply chains) would dampen demand for oil. And there's only a fraction of planes, trains and automobiles running these days, says Ong.

Closer to home and away from financial market chaos, Rabobank senior grain and oilseeds analyst Cheryl Kalisch Gordon says Australian grain growers are quietly preparing for a promising winter crop.

She says the low Australian dollar will remain a key driver for grain growers too, as the AUD trades weaker than many major rival exporters, bolstering export opportunities and better supporting local prices.

Although wheat prices are expected to see a supply-based price softening coming into the Australian harvest, Kalisch Gordon says the prices will remain above 10-year and five-year averages.

Outside of COVID-19, a more significant impact on global wheat pricing would be a restriction of exports out of the Black Sea, a region that represents 30% of global wheat exports, says Kalisch Gordon.

Rabobank commodity analyst Charles Clack says Australian raw sugar production will be comparative to 2019 at about 4.2 million tonnes, which is below the national five-year average. The sector will also rely heavily on a depreciating Aussie dollar for export opportunities.

Given that Thailand's cane crop will be down 40% this year, demand for Australian sugar is expected to lift as Asian countries look further afield. However, global consumption is expected to take a large hit due to COVID-19.

Clack says the global sugar price would continue to take its lead from the oil market in the short term, and any average ethanol prices reaching above a sugar equivalent of US$11c a pound would encourage a swing towards sugar production over ethanol.

We're cutting through the confusion to help you manage your money during the coronavirus outbreak. Click here for more on how COVID-19 could affect your job, budget, super and investments.

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Darren Snyder was the managing editor of Money magazine from March 2019 to November 2020. Prior to that he was editor of Financial Standard.
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