Commodities and Currencies

Every once in a while I come across a chart that is important in terms of multiple markets. This chart is two different views of the relationship between copper and the Aussie dollar. On the top, the price movements between copper and the Aussie dollar are shown - one could say they are closely correlated. Then if you look at the second chart, a ratio of the copper contract to the Aussie dollar, you see the relative performance between the two contracts. Compared to the previous highs on both contracts from a few years ago, the Aussie dollar is actually stronger than the copper contract relatively speaking. If the dollar had not been so weak over the past few months, I wonder if this ratio would be spiking as I type?

Since it is not spiking, does this imply that the metals strength is not driven by demand but by dollar weakness? Further, that would imply a lack of fundamental support for the move and could lead to some intense selling of the metals and everything else negatively correlated to the dollar if the dollar finds any form of support. And if the Fed does not confirm the QE2 that the market wants, I believe the dollar will find some sort of support.

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