Australia’s RBA Commodity Index in SDR terms rose to 16.9% year on year in June, edging up from 16.8% previously. The move implies a marginal acceleration in the annual pace of the index.
The June reading leaves the measure close to recent levels, with the year-on-year gain remaining in the mid-teens. The RBA series tracks commodity price developments expressed in SDRs, providing a currency-basket view of price pressures.
Commodity Growth Plateauing and Currency Implications
We are seeing that the year-on-year growth in commodity prices, while still very strong at 16.9%, is beginning to plateau. This small uptick suggests the major price acceleration phase might be behind us for now. The easy money from simply being long commodities and commodity-linked assets may have already been made.
This sustained high level of prices provides a strong fundamental floor for the Australian dollar. However, with the AUD/USD already trading near a two-year high of 0.7050, we feel the currency’s momentum may be limited without a new catalyst. Speculative positioning data from the CFTC also shows that long AUD positions are already quite crowded, increasing the risk of a reversal.
Equity Market Impact and Trading Strategies
For the ASX 200, the materials and energy sectors, which have driven much of the index’s gains over the last year, may see their earnings growth slow. We should consider using options to hedge long equity positions or writing covered calls on major miners like BHP and Rio Tinto. This strategy allows us to collect premium while acknowledging that significant further upside may be limited in the immediate term.
The persistence of high commodity prices continues to fuel domestic inflation, which the latest quarterly data showed was still at 3.5%, well above the RBA’s target band. This makes it highly unlikely the central bank will consider interest rate cuts in the near future. Therefore, we see continued value in positions that bet on rates staying higher for longer, such as selling short-term interest rate futures.
Given this environment of high but flattening price growth, we believe volatility may decrease in the coming weeks. Selling options premium on currency pairs like the AUD/USD or on the ASX 200 index itself could be a prudent strategy. These trades profit if the underlying assets trade within a defined range, which aligns with our view of a market that is supported but lacking new upward drivers.
