Wednesday, 29 February 2012

RBA Commodity Price Falls Continue

Busy day.  The RBA monthly commodity price series confirms further commodity price falls.

In Australian dollar terms, the RBA Index of Commodity Prices fell 1.3% in February and is now 11.5% below the August 2011 peak.  The index is at its lowest level since December 2010.  That said, commodity prices are still at elevated levels.

The commodity price news confirms, at least to some extent, an over-valuation of the Australian dollar, a point hinted at by RBA Governor Glenn Stevens when last week he noted the divergence between the falling terms of trade (largely commodity prices) and the still strong Australian dollar.  The Australian dollar look overvalued on several fronts, but as we all know, market mis-pricing can, and often does, last quite a long time.

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