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By Tim Seymour

Question: How can commodity currencies withstand the deflation that spot prices in core commodities are enduring?

Answer: Some are not, notably South Africa (NYSEARCA:EZA) and its obvious linkage to gold, as well as Russia (NYSEARCA:RSX) with its ties to oil. The ultimate commodity currency, however, has to be the Australian dollar (NYSEARCA:EWA). While the last couple of days have been worth a -1.2% move, the Australian dollar tested lows of .97 in May/June last year.

Arguably, things are worse with regard to the core global growth story, even though Europe has found a baseline support. The move in gold (NYSEARCA:GLD) should equal a move to sell the Australian dollar.

Source: Commodity Currencies: The Deflation Factor