The devastation in global commodity currencies is far from over

Canada, Australia, New Zealand currencies set to plunge, OppenheimerFunds says.

A bounce in crude oil and other commodity prices Tuesday halted a plunge in currencies of countries linked to natural-resource exports. The respite will be short-lived, according to OppenheimerFunds Inc.

The Canadian, Australian and New Zealand dollars are off to the worst start to a year since the financial crisis. The nations are grappling with a 29% drop in raw-material prices amid swelling supplies and slowing demand in China that may wipe out as much as 14% of the Canadian dollar’s value in the next three years.

Next up, they’ll have to contend with the Federal Reserve’s plan to raise interest rates this year, which is forecast to boost the US dollar.

 
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“Compared to the US talk about raising rates and tightening policy, the commodity currencies are going in the exact opposite direction,” Alessio de Longis, a money manager in the Global Multi-Asset Group at OppenheimerFunds,  said from New York. “These currencies are not cheap by any means.”

De Longis, whose company manages $233 billion, projected the Canadian dollar will weaken 14% in the next one to three years. He estimated the Aussie will fall in the same timeframe to 60 cents per US dollar and the kiwi to drop to 50 cents.

The Canadian dollar weakened 0.2% Thursday to an 11-year low while the kiwi lost 0.5%.

Even as the Reserve Bank of Australia held interest rates steady and spurred a currency bounce, de Longis said he expects central banks in the commodity-exporting nations to continue easing monetary policy, sending their currencies tumbling versus the greenback.

The Bloomberg Commodity Index fell to a 13-year low Monday after Chinese manufacturing gauges slowed, clouding the outlook for demand. In contrast, the US currency has rallied against all 16 major peers in the past 12 months on signs that the Fed is getting closer to raising rates.

“Caution is still in order as today’s Aussie gains are corrective in nature,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co., said in a note. “It is obvious that RBA policy must remain accommodative.”

©2015 Bloomberg News

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