FXStreet (Delhi) – Research Team at Nomura, suggests that commodity currencies will depreciate further in 2016, as commodity prices remain low and rate hikes by the Fed affect the rate differential and AUD is likely to depreciate the most, while CAD is likely to depreciate the least against USD. Key Quotes “Commodity currencies have remained in a range, putting an end to the trend depreciation that was seen since mid-2014.” “Despite a lack of major FX moves, there have been some changes in recent months. Some commodity prices have resumed their march lower (notably base metals). Moreover, the Federal Reserve is now expected to initiate lift-off at the December meeting, while at the same time our US economists expect the pace of normalisation to be slower than previously thought.” “The higher yields in the US are likely to support USD through the rate differential and push commodity currencies weaker.” “Commodity currencies are much more sensitive to changes in the terms of trade than changes in the rate differential, meaning that the resulting depreciation will likely be small. This means that the outlook for commodity prices matters more than the rate differential.” “Commodity currencies are currently close to their fair values; marginally overvalued for AUD and NZD, but marginally undervalued for CAD. As such, the adjustment needed will be small, contrary to what we saw over the past year, where commodity currencies corrected a sizeable divergence with the terms of trade. This means that movements in those currencies are likely to be more modest than what we have seen over the past year.” For more information, read our latest forex news.