It`s a given in the market that there`s an inverse relationship between dollar strength and the price of commodities, but Citi Research argues that correlation is now gone.
But the impact of a stronger dollar on trade terms has not followed a set pattern in the past few years, Citi said.
Key commodities traded globally such as crude oil, gold, copper and softs like wheat are typically priced in dollars, with liquidity often favor the major exchanges in New York, London and Chicago as centers of trade.
Case in point?commodities generated strong returns in the fourth quarter of 2016 with the Goldman Sachs Commodity Index moving 9 percent higher despite a stronger greenback which gained about 7 percent against major currencies.
"While it`s not uncommon for commodities and USD to rally or sell off at the same time, especially when we look at their returns at a higher frequency (daily or weekly), 4Q 2016 was actually the first quarter in more than a decade to see such a sizable divergence," the analysts added.
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