Whether we consider the dollar’s level against a trade-weighted basket of other currencies or against a basket of commodities, its strength is arguably ‘the market story’ of 2022. As to why we have seen it move upwards in practically all dimensions, there are a host of explanations. There is the time-honoured dollar surge which happens with a hawkish shift in Fed policy. Another force lifting the $ is its perceived ‘safe-haven’ status – ‘safe-haven’ when there are concerns over global economic growth and/or geo-politics. Despite this dollar strength in 2022, one should be in no doubt what we have witnessed has been a dollar ‘head-fake’. Yes, the further the Fed raises its funds rate over the next few Federal Open Market Committee (FOMC) meetings, the wider the head-fake will prove, but in time – by mid-2023 – it will have proven to have been a head-fake nonetheless. Why? Well, a few reasons are outlined below.

De-dollarisation is well underway

As things stand today, the USD remains the currency used as the numeraire for trading in practically all commodities. However, profound change is upon us. Yes, as things stand, an element of commodity price weakness can be equated to dollar strength and a move higher in commodity prices can be attributed to dollar weakness. Yes, therefore, as things are today, given a weak dollar outlook, one should expect a general uptrend in commodity prices – but that is as long as they continue to be priced in the dollar. This is certain to soon change. Indeed, just one example is that we have recently learnt Ghana is in talks with Saudi’s Emirates National Oil for a barter arrangement that will enable it to buy oil with gold. This follows Chinese refiner Zhejiang Petroleum & Chemical signing a deal in November with Aramco to purchase crude oil in yuan. We have also learnt recently that China increased its gold reserves in November for the first time in more than three years, seeking to diversify its reserves away from the dollar.