Goldman Sachs: Commodities Can Help Cushion The Blow Of Higher Rates

Goldman Sachs note that their "empirical work has generally indicated that when U.S. 10-year yields move faster than the 20-30bp/month 'speed limit' EM FX tends to come under pressure; so it is not really surprising that when a move of roughly half of that magnitude occurred in a day EM currencies depreciated meaningfully. While commodity prices, too, have been volatile, over a longer horizon the contemporaneous and lagged effects of large increases in commodity prices in recent months should help cushion the blow of higher core yields for commodity-sensitive EM FX once the pace of the move moderates. In recent work, we re-examined the sensitivities of key commodity-linked EM crosses to the prices of oil and copper. While the currencies of oil exporters such as RUB and COP still scan as benefiting most from an oil price increase, we find that EM FX sensitivities to oil have fallen in recent years (consistent with previous work). EM FX sensitivities to copper show fewer signs of having declined, with CLP and ZAR still near the top of the list. Overall, while post-coronacrisis commodity 'betas' tend to be lower than pre-coronacrisis 'betas', and therefore suggest somewhat less EM FX underperformance YTD, our simple benchmarking exercises continue to suggest room for commodity-sensitive EM currencies - such as MXN, ZAR and RUB - to appreciate once the speed of the core rates move slows."