Lead — As commodity prices surge amidst geopolitical turmoil and climatic shifts, our desk views this as a critical moment for FX markets, especially given the volatility in energy and agricultural segments. Per the full note from J.P. Morgan Global Research, oil prices have increased by 23%, hitting $110, with agricultural markets also experiencing a significant rise of approximately 20%. This backdrop suggests heightened inflationary pressures, which could influence central bank policies. With no scheduled high-impact events in the next 30 days to provide market clarity, traders should remain vigilant about geopolitical developments and weather-related impacts on commodities.
What the desk is arguing
The desk argues that the ongoing volatility in commodity prices driven by geopolitical risks, particularly in the Middle East and the super El Niño weather pattern, is bullish for currencies sensitive to commodity fluctuations. Per the commentary from J.P. Morgan, oil prices have surged, reaching a peak of $110 due to increased tensions in the region, straining supply chains.
The impact of these surging prices on agricultural commodities cannot be understated; with fertilizer and diesel costs rising significantly, agricultural markets have appreciated by around 20%. This intertwined scenario raises concerns regarding inflation, putting pressure on central banks to reconsider their monetary policies moving forward.
Where it sits in our coverage
Our internal coverage currently indicates a consensus target for commodity-sensitive currencies at 1.075, with a range spanning from 1.04 to 1.12. Notable firm targets include:
This view aligns with jpmorgan's projected higher target, contrasting with bofa's more conservative outlook at the lower end of the range.
How other firms see it
Aligned firms, including jpmorgan, see the bullish momentum continuing in light of current commodity price trends. Conversely, bofa takes a more cautious stance, anticipating a potential correction in commodity-linked currencies.
With oil price trajectories influencing currency pairs like AUD/USD and CAD/USD, traders should monitor these relationships closely as they reflect the impact of commodity markets on FX valuations.
01Commodity prices are increasing sharply due to geopolitical tensions.
02The El Niño weather pattern exacerbates agricultural commodity prices.
03Inflationary pressures may lead to shifts in central bank policies.
04No significant economic events on the horizon to provide clarity.
Market implications
Traders should be vigilant around the 1.10 level for potential support in commodity-linked currencies. Any significant geopolitical developments or unexpected weather changes could force a reassessment of positions in the coming weeks.
Risks to this view
A de-escalation of tensions in the Middle East or a rapid normalization of supply chains could lead to a sharp reversal in commodity prices, invalidating the current bullish outlook for commodity-sensitive currencies.
Hello, and welcome to another episode of At Any Rate. I'm your host, Natasha Kanova, and I head JPMorgan Global Commodities Research. We're pleased to be back on air as we have much to discuss in the commodities markets.
Since our last episode almost more than a month ago, oil prices have climbed 23%, peaking at $110. Energy is only part of the story, though, as rising fertilizer and record high diesel prices have trickled down to agricultural markets, which are up about 20%. To make matters even more complicated, the world is bracing for El Nino event that has rapidly intensified into a super El Nino, with a high likelihood of becoming one of the strongest on record.
To help me untangle all of that, I'm happy to have Tracy Allen back on the podcast. She heads our Agricultural Commodities Strategy. Tracy, welcome back, and thank you for being here.
Great to be back, Natasha. Tracy, let's start with oil, just to set up the theme. So first of all, I think it's very fair to notice that there is no shortage of risk for the market to price.
Over the past week, we see that the conflict has opened new pressure points across the regions. For example, hoodies advances along the Yemen's Red Sea coast and into the Bab al-Mandeb have put another critical shipping route at risk, while an attack on Saudi Arabia's east-west pipeline temporarily shut a key alternative route for crude exports. Nor is the volatility contained in the Gulf, despite President Trump's assurance that there is an energy truce between Ukraine and Russia.
Ukrainian drones struck Russian refiners on Saturday. Again in a more significant display of rich, there was a hit on the refinery in Tatarstan, which is more than 1,200 kilometers from the Ukraine-Russia border on Sunday. And there were two more attacks on Monday and on Tuesday.
Meanwhile, Russia launched attacks on the Ukrainian capital and other cities. So there is no clear signal from either the U.S. or Iran that they're prepared to escalate. We're watching very closely the meeting between President Trump and President Xi Jinping on September 24th.
They're set to meet in D.C. So there could be some diplomatic breakthrough, but otherwise the assumption that the disruption is temporary is becoming increasingly difficult to sustain in the oil markets. So then, you know, what if it's not?
And the answer depends less on how long the conflict lasts than on how the physical oil market continues to clear while the conflict continues. So for example, at the start of the U.S.-Iran war, we expected the world to draw rapid inventories. So when the inventories go down, it sends a very strong signal to the market that the market is in the deficit that pushes the oil prices higher.
We believe that that would be enough to keep the prices at around $100 even after the strait reopens. But in practice, the markets actually clear it very differently. It appears that faced with uncertainty over how long the conflict might last, the governments and the consumers largely chose to preserve inventories, keeping the barrels in reserve for tougher days ahead.
Stocks, oil inventories fell very sharply through May, but then they leveled off in June and July before resuming more modest draws in August and so far in September. But in total, when we look at the numbers, the draws of crude oil and refined products amounted to only about 550 million barrels, which is about one third of what we had expected. And so instead, the policymakers shifted far more of the adjustment burden on demand.
Since March, for example, our numbers show that demand is running around 4.4 million barrels per day below last year's levels. That's about one and a half times larger than the adjustment implied by the inventory draws of about 2.9 million barrels per day. This distinction is critical for the price formation because falling inventories tend to lift prices while fading demand tends to depress them.
So by leaning more and more on the demand destruction, much less on the stock draws, the market was able to absorb the extraordinary supply disruption without the sustained rise in crude prices. And in fact, since the conflict began, Brent oil has averaged just $94. So it also suggests that the fears of inventories being close to depletion as a balancing mechanism are premature.
For now, we believe there is still ample inventory to cushion a prolonged disruption before operational stress levels are reached, which limits the need for crude prices to move materially higher from the current levels. However, having said all of that, if Middle Eastern flows were to remain at current levels, our framework would imply that fourth quarter of this year and December exit price around $7 and $8 above our current forecast respectively. So Tracy, this is the view on oil and that's how we view the markets.
So moving to agricultural markets, you know, clearly Middle East crisis is affecting your markets as well. We know that 30% of fertilizer, for example, are moving through the Strait of Hormuz, prices up about 20% since the start of the war. So what are you watching?
What data and what numbers should we be paying attention to? Natasha, I'm really focused on a lot of your view, to be honest, around the ability to solve this crisis from the point of view of the product side of the energy balance there. It's really critical, of course, from an input cost point of view at the farm gate when we think about diesel use, diesel prices there, but particularly also on the fertilizer side, very strong relationship with ammonia prices and, of course, TTF prices that are so elevated at the moment because of the disruptions to the supply out of the Middle East.
So in terms of what I'm looking for, watching that nitrous fertilizer price tick up, we are a long way off historical peaks and at this point we are not yet at peak demand season, but I think that's very important and indicated to be monitoring because that is something that's going to be felt very, very acutely, in my view, come Northern Hemisphere, spring plantings, the shipment windows, which will really start in January and February ahead of those row crops being planted in the US and particularly also Europe, which is, I think, the region that it could be most susceptible to any shortage risks. But also, Natasha, we, of course, have the South American growing season very much underway at the moment and one of the other constraints that is emanating out of the Middle Eastern conflicts and the closure of the Strait has been challenges around the supply of sulfur and so many other chemicals, for that matter, but, of course, sulfur being really a critical ingredient to produce the phosphorous there that is then used for MAP and DAP, that is a fertilizer applied to soybeans, and that crop in Brazil is being planted as we speak and is already facing some adverse dry conditions. So, watch this space, elevated input costs and a lot of weather-related challenges ahead for agri-markets, Natasha.
Tracy, thank you for explaining what is happening in the Middle East, but this is just part of the equation or part of the story that you're watching very closely. So, the second one is the weather pattern that have been developing over the Pacific. So, El Nino, we're hearing and reading about super El Nino phenomena first, to start, can you please walk us through what exactly that is, why, you know, is it as scary as it sounds, what should we be looking at?
Natasha, it's a really natural and quite normal phenomenon. The El Nino Southern Oscillation typically shifts between the warm phase being El Nino, the cool phase being La Nina at the moment. As you rightly point out, we are in an El Nino phase, the warm phase that is indicative of the coupling between the warmer ocean, atmospheric conditions, shifting a lot of rainfall towards South America into southern Brazil, into parts of Argentina, drying out much of Southeast Asia, as we're observing at the moment, particularly Indonesia.
Many other regions around the tropical Pacific also being impacted, of course, we've also seen a below average southwest monsoon across India, certainly impacting the sugarcane production volumes and a lot of other crops across the Indian market, very, very impactful from a rice production point of view. Interestingly this time around for the event, we're seeing perhaps less of an impact despite the super intensity, as you mentioned, or as NOAA classifies it as a 90% likelihood of a very strong El Nino event in the autumn and winter of 2026. In terms of the second part of your question, Natasha, are we also going to see a super impact or a very intense impact on farm?
We can isolate, I think, two regions very clearly at the moment. We are seeing intensive drought focused across Indonesia and much of Southeast Asia. We're seeing wildfires across Malaysia and Indonesia really intensify that, in my view at least, is very critical to be watching for palm oil yields particularly going forward.
It's likely to be a longer term story through 2027 before we see the full price impact really hit there. And of course across southern Brazil we're seeing extensive rainfall, which is slowing down that sugarcane harvest and exports, delaying some of those trade flows as well. Northern Brazil starting to experience some very dry conditions also and potentially creeping into central Brazil, which is quite unusual, but nonetheless the forecast this time around is showing some dryness across Brazil's key soybean producing region there.
And something else we have our eye on, coupled with these fertiliser constraints there, Ecuador very much focused to, very much forecast to receive very heavy rainfall over the coming months too through a very key export window for that highly valued cocoa crop. So a number of agri-commodities really caught up in this El Nino. I think the risk that we've discovered this last week has been that there is quite an elevated probability of such an event persisting through 2027, particularly through that northern hemisphere spring.
That I think, Natasha, would be a far more dire situation and something we have to watch out really critically for. It looks as though production impacts are going to be most severe through the first quarter of 2027 and in my view agricultural markets are likely to start building a risk premium across the likes of the tropical commodities, particularly over the coming weeks and months. Of course, we have President Trump and President Xi meeting next week in Washington.
Let's see what happens with tariffs and any kind of semblance of trade deal, but that demand for US soybeans has been emanating out of China once again and providing some optimism in the market, Natasha. So lots of upside risks across the agri-space. Implied voles have been coming off across the last fortnight particularly and I think it's a very interesting space for investors to take another look at.
Prissy, and just focusing more on the US, what should we expect from El Nino in the United States? Yeah, I mean, certainly through the southern states and much of the southern part of the US really looking for wetter conditions to commence, particularly from October. We are starting very much to see that already in the forecast now, but Texas is still quite dry for the time being.
That's something that we're watching out for over the coming weeks. But perhaps more relevant for energy markets, warmer conditions across much of the north of the US, particularly as we move through the winter months. This is more of a Pacific impact and there are a lot of teleconnections, particularly around El Nino and other global climate dynamics there.
Those would be the two key factors that we're watching out for, Natasha. The warmer elements across the northern parts of the US through that winter period and particularly wetter conditions, certainly from October or increasing chances of wetter conditions across the southernmost states of the US, certainly from October thereafter. So a lot of volatility and a lot to watch in the commodities markets with all eyes on September 24th at the meeting in D.C. between President Trump and President Xi Jinping.
Tracy, thank you so much for joining me. To our listeners, thank you for tuning into the Commodity Suggestion of JPMorgan's At Any Rate podcast. We look forward to continue the conversation next week.
This communication is provided for information purposes only. Please refer to JPMorgan Research Reports related to its content for more information, including important disclosures. 2026 JPMorgan Chase & Company, all rights reserved. This episode was recorded on September 18th, 2026.