Can commodity prices forecast exchange rates?

Li Liu, Siming Tan and Yudong Wang

Energy Economics, 2020, vol. 87, issue C

Abstract: Forecasting exchange rates is a challenging work. This paper investigates the predictive content of commodity prices for exchange rates. We draw a factor from prices of 17 popular commodities including crude oil to forecast exchange rates. Our results indicate that the average commodity returns can successfully predict the level and excess returns to exchange rates of currencies in Australia, Canada, New Zealand and South Africa from both in-sample and out-of-sample perspectives. The predictability of excess currency returns is further demonstrated to be economically significant. An agent with mean-variance preference who allocates her wealth between domestic and foreign bonds can improve the portfolio performance by using commodity forecasts of currency return instead of the benchmark of historical average forecasts.

Keywords: Commodity prices; Exchange rates; Currency return; Portfolio (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S014098832030058X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:87:y:2020:i:c:s014098832030058x

DOI: 10.1016/j.eneco.2020.104719

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().