Soft Commodities Gain Impromptu Significance
The US presidential election has affected the global markets in more ways than expected. The winning of Donald Trump has suddenly increased the interest in soft commodities. The soft commodities manufacturing companies are dominating in emerging currency markets. As the unexpected result of the US elections has resulted in depreciation of emerging currencies, the prices of soft commodities will continue to rise.
The soft commodities such as palm oil are traded in the international spot market in dollars. When the trading companies convert the prices of soft commodities to the local currency, they can experience a surge in profits due to the strengthening of US dollar against all currencies.
The Indonesian currency rupiah fell by 3% after Friday due to the strengthening of greenback. Expectations of higher interest rates in the US have resulted in weakening of many global currencies. Similarly, Malaysian ringgit also fell to its lowest value since 2015. On Tuesday, the rupiah tend to achieve a steady value while the Malaysian ringgit lost further. Economic experts suggest that investing in palm oil related company stocks can bring in short term profits.
The Indonesia and Malaysia contribute to as much as 90% of the production of palm oil in the world and this is used in a variety of products ranging from biscuits to detergents. The El nino and La Nina weather phenomenon has caused a disruption in the production process. Soybean oil, which is a widely preferred substitute for palm oil, has also suffered a blow due to the dry weather. This in turn will increase the demand for these oils and the prices are expected to rise.
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