Spiking Commodities Fuel DXY Higher| Influencer‘s Insight •Jasper Lo

The DXY last Friday (Mar. 5) broke two topside resistances of 91.602 and 91.746 eventually. The main reason is the improved jobs data released on the day. It moved even higher this morning because the Senate had given its approval to Biden's $1.9 trillion relief package. Although the Senate removed the provision of raising the minimum wage from $7.25to $15, such a dynamic is also regarded by the forex market as a boost to the dollar. At the same time, the hiking US 10-year Treasury Yield also underpinned the dollars breakout this time.

The Treasury saw its yield surging to 1.63%, recording a yearly high once again. This stems from the repeatedly speculated US economic recovery, which brings hopes to the financial market for soared inflation. Another major reason is the spiraling global commodity prices. Investors who know well about the relationship between commodity prices and the DXY may point out that, a strong DXY will hamper commodity prices, especially gold prices. But the fact is a number of commodities have been extending their gains regardless of the strong DXY since the beginning of this year, staging a rise in parallel with the dollars growth. Therefore, the current situation must be carefully figured out to avoid analytical errors.

The financial market has broadly bet on the economic revival amid the vaccination of several countries worldwide. Some commodities are in short supply and have shown inventory reduction. Take copper and oil as examples, they are immune to the dollars rally and have embraced enduring upsides. Since August last year, oil prices have been moving synchronized with the Treasury yield, indicating the swelling commodity prices indeed drive the yield higher.

The financial market has raised inflation expectations in the face of buoyant commodity prices. Amid such expectations, the Fed adopted no more monetary easing measures, and the bond yields gained a universal upside. The spread of bond yields between the US and other industrial countries is further widened attributed to the soaring Treasury, inspiring the dollar to move even higher. As a result, a rare case that the dollar and commodities (except gold) move in complete synchronization appeared.