How Commodity Currencies Performed Amid COVID-19

  • 12 Nov 2020
  • By Erik Norland

The pandemic has been the defining economic event of 2020, overshadowing the usual influences on currency markets like monetary and fiscal policy.  Normally, currencies of major commodity exporters such as Australia, Brazil, Canada, Chile, Colombia, New Zealand, Russia and South Africa track indices weighted to reflect the economic importance of their various raw materials exports. So far in 2020, some of these currencies, notably the Australian and New Zealand dollars (AUD and NZD, respectively) have continued to track their commodity indices closely. Other currencies, such as the Brazilian real (BRL), Chilean peso (CHL) and South African rand (ZAR) have sharply underperformed their respective commodity indices. Currencies like the Canadian dollar (CAD), Russian ruble (RUB) and Colombian peso (COP) fall into an intermediate category.

The key determinant in whether a currency has kept pace with its commodity index appears to be the rate of COVID-19 infections.  The pandemic struck countries at different times and with highly varied mortality rates.  The greater the number of deaths per capita, the more likely the currency has underperformed its respective commodity index on a risk-adjusted basis.

Since currency markets tend to be less volatile than commodity markets, in order to compare their relative direction we calculate the information ratio of both the currency versus the U.S. dollar (USD) and the commodity index (also priced in USD) between February 1 and November 8, 2020.  We then subtract the commodity information ratio from the currency information ratio.  If the number is positive, the currency outperformed the commodity index on a risk-adjusted basis.  If the number is negative, then the commodity index outperformed the currency on a risk-adjusted basis.  The information ratio is the annualized excess return divided by the annualized standard deviation of excess returns, or put more simply, return divided by risk.

Comparing the risk-adjusted performance of the currency minus that of the locally weighted commodity index with the rates of COVID-19 mortality, reveals a negative correlation of -0.63, albeit among a small sample group of only eight nations.  In other words, the greater the impact from COVID-19, the more likely that a currency was to underperform its local commodity index when controlling for the level currency and commodity volatility.

Australia and New Zealand

Australia and New Zealand have very different commodity exports.  Australia’s commodity exports focus on coal (31%), iron ore (29%), gold (18%), copper and aluminum (7%).  By contrast, New Zealand’s exports are heavily weighted on dairy (60%), beef (14%), lumber (20%) and aluminum (7%).  Despite these differences, both the Australia-weighted and New Zealand-weighted commodity indices fell in Q1 and rebounded in Q2 (Figures 1 and 2).  On a risk-adjusted basis, AUD and NZD largely kept pace with their respective commodity indices.  Despite extremely low rates of COVID-19 mortality relative to their peers, neither currency outperformed its commodity index by much on a risk-adjusted basis.  While their commodity sectors have seen only modest impacts from COVID-19, other sectors such as tourism have been hard hit.  Tourism accounts for 3% of Australia’s GDP and 6.5% of GDP in New Zealand.

Figure 1: AUD has closely tracked an Australia-weighted commodity index

Figure 2: NZD has closely followed a New Zealand-weighted commodity index

Canada and Russia

Both Canada and Russia are major exporters of energy, metals and agricultural products.  Both have been harder hit by COVID-19 than Australia and New Zealand but not as badly hit as some of their other peers.  CAD and RUB have somewhat underperformed their commodity indexes so far during the pandemic (Figures 3 and 4).  Unlike, Australia and New Zealand, which are heading into their summers with close to zero ongoing mortality from COVID-19, Canada and Russia have seen a sharp uptick in recent COVID-19 related mortality.  This poses two difficult questions for CAD and RUB going forward:

  1. If COVID cases continue to rise into winter, will it further depress CAD and RUB?
  2. Given both nations’ reliance on energy exports, will winter in the Northern Hemisphere negatively impact demand for crude oil and refined products?

Figure 3: CAD has somewhat underperformed on a Canada-weighted commodity index

Figure 4: RUB has underperformed a Russia-Weighted Commodity Index

Brazil, Chile and South Africa

Amid one of the worst COVID-19 outbreaks in the world, Brazilian miners had to curtail production of iron ore and other raw materials.  This helped to send iron ore prices higher around the world while simultaneously exerting downward pressure on mining revenues and BRL.  Up until March, BRL and our Brazil-weighted commodity index had moved in lockstep.  Since the pandemic, as a result of these mining closures as well as the impact of COVID-19 on other sectors of the Brazilian economy, such as tourism, BRL has significantly underperformed commodity prices (Figure 5).

Figure 5: Mining closures meant that BRL didn’t benefit from higher iron ore prices

The U.S. dollar value of Chile’s most important export, copper, has soared since the pandemic began.  CLP, however, has failed to keep pace (Figure 6).  This may be because certain Chilean mines had to shut down or curtail production temporarily as COVID-19 cases spiked over the Chilean fall and winter.  Lower production simultaneously sent copper prices soaring while depriving Chile of much of the benefit that might have come with those higher prices had the volume of copper exports not been reduced.

Figure 6: CLP has underperformed a Chile-weighted commodity index as copper production fell

It’s a similar story in South Africa.  South African miners also had to curtail production of platinum, gold, iron ore, diamonds and other goods, depriving South Africa of export revenues and limiting beneficial the impact of higher prices on the rand (Figure 7).

Figure 7: ZAR has underperformed its commodity index but has rebounded as summer nears

The good news in for all three countries is that the Southern Hemisphere is now entering into late spring.  If warmer temperatures and other factors limit the spread of the virus, economic activity could rebound, and their currencies might be in a better position to keep pace with commodity prices going forward. Indeed, mortality rates have begun falling in all three countries.  The impact is especially notable in South Africa where ZAR has started to rebound in recent weeks.


Colombia has been exceptionally hard hit by COVID-19 but its currency has shown a somewhat milder response than Brazil, Chile or South Africa.  COP’s performance looks more akin to that of Canada or Russia (Figure 8).  Like Canada and Russia, Colombia is most reliant on crude oil as an export and also has a significant agricultural export sector.  Unlike Brazil, Chile or South Africa, metal mining plays only a small role in Colombia’s export mix.  The value of Colombia’s exports may depend most critically on the state of global crude and refined petroleum demand as the Northern Hemisphere enters winter.  The Northern Hemisphere is home to 90% of the world’s population and Europe and the US, in particular, continue to grabble with significant problems stemming from the pandemic.

Figure 8: Reliant on energy and agricultural exports, COP has behaved more like CAD and RUB

Bottom Line

  • The degree to which commodity exporting countries have suffered from COVID-19 explains a great deal of the over/under-performance of their currencies with respect to locally weighted indices of commodity prices.
  • Metals miners have been harder hit by COVID-19 than other commodity sectors where workers have less direct contact.
  • AUD and NZD, where COVID-19 has had the least impact, have followed their commodity indices most closely.
  • The greatest impact from COVID has happened in places like Brazil, Chile and South Africa which have suffered higher mortality rates and rely more heavily on metals mining.


All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author(s) and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

About the Author

Erik Norland is Executive Director and Senior Economist of CME Group. He is responsible for generating economic analysis on global financial markets by identifying emerging trends, evaluating economic factors and forecasting their impact on CME Group and the company’s business strategy, and upon those who trade in its various markets. He is also one of CME Group’s spokespeople on global economic, financial and geopolitical conditions.

View more reports from Erik Norland, Executive Director and Senior Economist of CME Group.

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