top of page

US Dollar vs Commodities: Correlation Confusion

  • The US Dollar Index notched a very strong April amid turmoil in Europe and Asia

  • Traditional asset class relationships have bucked trends in 2022

  • Any pullback in commodities is likely a buying opportunity as the year progresses

The US Dollar had one of its best months of the last decade in April. The trade-weighted index measures the greenback versus six major currencies. The Euro is the biggest driver, making up 58% of the ICE futures US Dollar Index (DXY). The Yen, British Pound, and Canadian Dollar are other components. Traders can easily play the USD via the popular Invesco DB US Dollar Index Bullish ETF (UUP).

USD Surges in 2022 Amid A Volatile Macro Backdrop

Our Global Cross Asset Market Monitor report sent each Monday morning reviews where the macro landscape stands before a busy week. And a lot is happening this week with the Fed’s meeting and presser yesterday and the US jobs report on Friday. With the DXY hitting its highest level since December 2002 recently, investors are clearly bracing for relative strength in the US currency. The Euro area continues to endure skyrocketing producer and consumer prices while Japan faces its own issues with supply constraints related to China’s zero-Covid lockdown measures. The relative bright spot is the CADUSD – the Loonie is still more than 10% above its 2016 and 2020 lows vs the USD.

Somewhat Skeptical of the Dollar’s Rally

Our weekly report dives into the Dollar’s breakout above 100, but also a cautionary look at the key 104 level on the DXY. A strong USD typically has bearish implications for commodities and ex-US stocks. That hasn’t been the case recently, however. For 2022, the US Dollar ETF is up a whopping 8% (a big move in FX land) while commodities, as measured by the Invesco DB Commodity Index Tracking Fund (DBC) has surged 35%, on pace for its best year ever. Commodities were the best asset class in 2021 too. Meanwhile, foreign shares are holding their own vs US equities despite a strong greenback. The all-country world index ex-US (ACWX) is about flat with the total US stock market (ITOT) through early May.

Featured Chart: US Dollar and GSCI Commodity Index YTD

chart of commodities vs US dollar

Changing Correlations

What’s it mean for macro investors? You must always adapt to shifting market correlations. While there are rules of thumb in intermarket analysis, price relationships among stocks, bonds, commodities, and currencies are never set in stone. This year has bucked many long-term intermarket guidelines. Staying on top of the latest primary drivers is the most important thing.

Eyeing the Industrial Metals Correction

The latest jolt higher in the USD comes as industrial metals pull back big time. Our Weekly Macro Themes report digs into the GSCI Industrial Metals Index following its rapid climb to all-time highs and subsequent retreat. We assert that the current pullback in this economically sensitive area could prove to be a decent buying opportunity within a longer-term bullish cycle for commodities. There could be more near-term downside, though, as a cyclical growth scare remains a big hurdle.

Bottom Line: The US Dollar’s massive move over the last six months has driven many macro trends. As the Fed continues down a path of fast hikes, expect more volatility in FX and hard assets. We remain bullish longer-term on commodities.

Follow us on:

1,002 views0 comments

Recent Posts

See All


bottom of page