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Analysts at JP Morgan Historically explained that there has been an inverse relationship between commodity prices and the U.S. dollar, as commodities are priced in dollars, but traded on a global basis.

As such, when the dollar declines, non-U.S. producers of commodities demand higher dollar-denominated prices, and foreign consumers are often willing to pay these higher prices because it does not constitute a change in purchasing power. This inverse relationship holds true for commodities broadly, but variations do exist within the asset class and tend to be driven by the underlying supply and demand dynamics for each individual commodity.

For example, the U.S. is one of the largest producers of livestock in the world, whereas China is the largest consumer of industrial metals.  As a result, metals have displayed a high degree of sensitivity to declines in the dollar, whereas livestock tends to fall when the dollar declines.

Looking ahead, a worsening fiscal deficit and structural trade deficit in the U.S., coupled with slower growth in 2019 due to fading fiscal stimulus, should push the dollar lower over the medium to long term. Meanwhile, growth outside of the U.S. and commodity demand are both poised to remain healthy. This backdrop suggests that there may be an opportunity in commodities going forward, particularly those parts of the market that have shown an elevated sensitivity to changes in the U.S. dollar