Forecasting Exchange Rates with Commodity Convenience Yields

Toni Beutler

No 12.03, Working Papers from Swiss National Bank, Study Center Gerzensee

Abstract: This paper investigates whether commodity convenience yields - the yields that accrue to the holders of physical commodities - can predict the exchange rate of commodity-exporters' currencies. Predictability is a consequence of the fact that i) convenience yields are useful predictors for commodity prices and ii) commodity currencies have a strong relationship with commodity prices. The empirical evidence indicates that there is a significant relationship between aggregate measures of convenience yields and commodity currencies' exchange rate, both in-sample and out-of- sample. A high level of convenience yields strongly predicts a depreciation of the Australian, Canadian and New Zealand dollars exchange rates at horizons of 1 to 24 months.

Pages: 40 pages
Date: 2012-03
New Economics Papers: this item is included in nep-for and nep-mon
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