The Reserve Bank of Australia last night released its commodity price index for the month of June, which registered a big fall in special drawing rights (SDR) terms (effectively a measure of prices based on a broad range of currencies) on the back of falls in Australia’s three biggest export commodities: iron ore, coal and gold:
Preliminary estimates for June indicate that the index fell by 4.1 per cent (on a monthly average basis) in SDR terms, after falling by 2 per cent in May (revised). The largest contributors to the decline in June were falls in the prices of iron ore, gold and coal. The prices of many rural commodities and base metals also declined in the month. In Australian dollar terms, the index rose by 1.8 per cent in June.
Over the past year, the index has fallen by 10.5 per cent in SDR terms. Much of this fall has been due to declines in the prices of coking coal, iron ore, thermal coal and gold. The index has fallen by 5.5 per cent in Australian dollar terms over the past year.
While the fall in the index is large in SDR terms, it has been cushioned by the 10%-plus fall in the Australian Dollar (AUD), which resulted in the index actually rising by 1.8% over the month in AUD terms (see next chart):
Looking forward, continued depreciation of the AUD will be required to cushion the blow to government revenues and nominal GDP, as well as promoting growth in the non-mining economy, as the terms-of-trade unwinds.
