Unlike recent commodities rallies in 2008 and 2011, yields on Treasuries and currencies of major exporters like Australia have barely budged. Likewise, the Federal Reserve’s favored measure of inflation expectations has disconnected from moves in raw materials.
The biggest buffer: Central bank credibility. Led by the Federal Reserve, policy makers have consistently doubled down on lower-for-longer rates and projections for “” inflation. That’s left investors wary to bet against commitments to keep policy loose for the foreseeable future. “The big change this time around is central bank policy,” said Kerry Craig, global market strategist at JPMorgan Asset Management in Melbourne. Ultra-easy monetary policy is now “weighing down currencies that would have naturally risen a lot more during a cycle where commodity prices are rising.”
The Australian and New Zealand dollars — two major currencies whose fates usually rely heavily on trends in commodities consumed by China’s booming economy — are indisputable laggards. Each has increased less than 0.3% over the past three months.