Virtually all commodity and currency markets shot upward this week as President Trump stated on Wednesday that the US dollar was “getting too strong.”
Gold and silver rallied to new five month highs as the President stated he would prefer the Federal Reserve keep interest rates low and left open the possibility of re-nominating Federal Reserve Chair Janet Yellen once her tenure is over next year.
His favoring of a weak U.S. currency and lower interest rates should be bullish for U.S. exports and domestically-produced commodities as it makes our goods cheaper to those who will be paying with less valuable dollars.
The expectations for a weaker dollar augmented a rally in grain markets already buoyed this week by Chinese demand and concerns that Midwest farmers may have their planting delayed by too-wet fields.
Meanwhile, if President Trump is successful in making the U.S. dollar weaker, foreign goods will be more expensive, a factor that could help support his efforts to establish more balanced levels of trade between the U.S. and the rest of the world.
Oil Market Tightening
The U.S. petroleum markets may finally be feeling the pinch from OPEC’s production cuts. Stockpiles of gasoline, diesel fuel, and crude oil all fell sharply this week, bringing inventories down from record levels.
This realization helped boost oil prices to a five-week high near $54 per barrel on Wednesday.
El Niño to Strike Again?
After a record-breaking El Niño struck in 2016, some weather forecasters are expecting that the weather phenomenon could return this year. El Niño has globe-spanning impacts on humans and commodities markets.
The climate pattern shifts rainfall away from Southeast Asia and Australia, while bringing more precipitation to the U.S. Midwest and parts of South America. Last year, El Niño-driven droughts in Asia pushed coffee and palm oil prices sky-high. Meanwhile, fortuitous rains alleviated drought conditions in the U.S. and helped bring bumper crops of corn and soybeans.
For now, forecasters are split on whether the weather will be affected drastically this year, keeping farmers and commodities traders on edge.