The Relationship between Commodity Prices and Currency Exchange Rates: Evidence from the Futures Markets

We examine the relationship between four commodity-exporting countries' currency returns and a range of index-based commodity returns. We use daily futures data to investigate the fast dynamics between commodity prices and currency exchange rates while avoiding market imperfections in the commodity spot market. We find that commodity/currency relationships exist contemporaneously but fail to exhibit lead-lag behavior in either direction. Our results indicate that futures markets are efficient in processing information and that commodity and currency futures prices respond to information shocks simultaneously on a daily basis. The results are robust across different periods ranging from July 1992 through January 2009.