Five aspects of currency war push up commodity prices

Economic Observer Online: Chen Kexin/A major event in the economic life of the future is the global currency war. The so-called currency war is actually the world's major economic countries. It tries to promote the devaluation of the national currency as much as possible so as to stimulate exports and achieve more employment and economic growth. The source and the main force of this currency war are both the U.S. government, and they are attempting to acquire major economic strategic interests. This has triggered the war of all countries in the world to defend their own interests.

As a result of the currency war, commodity prices will be pushed up in five ways.

The first aspect is that the continuous depreciation of the U.S. dollar has directly pushed up the commodity prices in the international market. As mentioned above, the United States is the initiator of this currency war. Due to the objective imperatives and subjectively active advancement, the situation in which the continued depreciation of the dollar will be inevitable in the future. It is expected that within one or two weeks, the US dollar index against a basket of currencies may fall to near the 60 mark, and even a larger decline will occur. Because the US dollar is used as the main price-counting unit for international markets and trade settlement currency, it will be difficult to change in the short term. Therefore, the sharp decline in the exchange rate of the US dollar will inevitably directly push up the international market for commodities such as oil, coal, ore, metals, and agricultural products. And gold prices.

The second aspect is the "double-edged sword" effect of RMB appreciation. Because of the constraints of some factors, the RMB will appreciate significantly in this currency war. Statistics show that since the decision of the People's Bank of China on June 19 to further increase the flexibility of the RMB exchange rate, less than four months (October 14), the cumulative appreciation of the RMB against the US dollar has been nearly 2.5 percentage points. Among them, the rate of appreciation in the most recent month was 1.2%. As the current and future appreciation of the renminbi is already expected, it has become stronger. It is expected that the exchange rate between the US dollar and the RMB in the year of 2011 is likely to be 1:6 or even higher.

For commodity prices, the appreciation of the renminbi is actually a "double-edged sword." Although the increase in purchasing power of currency units after the appreciation of the renminbi can reduce the import goods, especially the cost of import of raw materials, it has greatly eased the current upward pressure on cost-type prices. At the same time, however, the increase in the purchasing power of renminbi renminbi is a great encouragement for the bulk commodity market in the international market. For example, after the central bank announced in mid-September this year that it would increase the floating rate of the RMB exchange rate, it triggered a rise in the prices of bulk commodities at home and abroad. Therefore, whether the appreciation of the renminbi will definitely reduce the price of Chinese bulk imports is still an uncertain factor. The key point is that the cost of imports due to its appreciation will fall, and whether it can completely offset the price increase caused by the depreciation of the dollar, the influx of “hot money” and the increase in purchasing power. Judging from the great trend in the future, this situation is not optimistic. In the "double-edged sword effect" of the appreciation of the renminbi, the effect of pushing up prices may be greater than the effect of lowering prices.

The third aspect is the appreciation of commodity currencies. It is necessary to increase sales prices to reduce losses. In general, currently the currencies of various countries in the world can be roughly divided into four categories. One is the U.S. currency; the other is the European currency, mainly the European national currency; the other is the Asian currency, such as East Asia's Japan, South Korea, Japan, Singapore and other national currencies; the last is Australia, Brazil and other large export resources. Product country's commodity currency.

Among the above-mentioned national currencies, revenues have increased substantially due to the favorable export situation of resource commodity countries such as Australia. In order to prevent inflation, it was forced to raise interest rates, which in turn led to a sharp appreciation of the local currency. Some people think that according to the current trend, the exchange rate between the Australian dollar and the US dollar may reach 1:1. The appreciation of currencies such as the Australian dollar and the real will cause exchanges to be lost in the sale of bulk commodities such as iron ore, coal, and grain, etc., of the companies in the above-mentioned countries, and have to make up for this by increasing sales prices.

The fourth aspect is that a large number of safe-haven currencies have entered the commodity sector, significantly increasing the need for hedging purchases. In fact, the debt is high, and the overprinting of banknotes is not only the United States, but also ubiquitous in the euro area countries and other countries. The result of the currency war is the devaluation of currencies by all countries. In this case, there is an atmosphere in which money holders do not trust the national banknotes (bonds). Affected by this, a considerable portion of currencies entered the commodity and gold sectors to hedge their investments, triggering a sharp increase in the value of hedging and risk-requiring purchases in the relevant commodity sectors over a period of time, and drastically pushing up prices. Relevant statistics show that since the United States announced the implementation of the quantitative easing monetary policy and promoted the depreciation of the US dollar, the gold price in the international market and other prices such as petroleum, non-ferrous metals, and agricultural products have all surged.

It is expected that in the future “currency” of currency warfare, the demand for such hedging in the commodity sector will increase and it will even increase rapidly. For example, Japan will use huge foreign exchange reserves and snap up resources products (including resource rights) worldwide, and other countries will do the same. The safe-haven currencies of all quarters have swarmed in. “Elephants stepped into the bathtub”, and the world market’s commodity prices can be imagined.

The fifth aspect is speculative capital speculation, pushing prices to the extreme. The above four aspects constitute an important foundation for future solid commodity prices. On this basis, speculative capital has shrunk thousands of trillions of funds to take advantage of speculation to push gold and all commodity prices to the extreme. According to relevant data, the current daily transaction volume of the global foreign exchange market reached 1.5 trillion US dollars, and the transaction funds in the commodity futures and spot markets are also huge. The rapid flow of these funds between each other has contributed to the fluctuations in commodity prices. It is expected that in the year 2011, we may see higher price gold prices, oil prices, iron ore prices, non-ferrous metal prices, agricultural prices and so on. Among them, the price of gold may reach 1,500 US dollars per ounce, and the price of oil may reach 100 US dollars per barrel.

China is the most important buyer of bulk commodities in the international market. China’s manufacturing is highly dependent on bulk imports, with an average of over 40% and a high of over 60%. The dramatic increase in commodity prices in the international market will, of course, increase China's raw material import costs, thereby increasing China's manufacturing costs and pushing up the overall price level. If extreme weather disasters, serious pests and diseases, and major geopolitical events occur in the future, price increases in China may be significantly higher than expected. In this regard, it is necessary to take precautions and take active precautions. It cannot be taken lightly because of excess production capacity in some processing and manufacturing industries.