Despite a constructive view on commodity currencies like the Chilean peso and South African rand, their respective central banks have recently announced reserve accumulation programs. This intervention acts as a direct headwind, making the currencies "stickier" and muting the speed and magnitude of potential appreciation.

Metals are uniquely positioned to perform across multiple economic regimes. They serve as a hedge against national debt and central bank irresponsibility, benefit from potential rate cuts and sticky inflation, and face a massive supply-demand shock from the AI and energy infrastructure build-out.

A decoupling is occurring where EM high-yield currencies are outperforming DM high-beta currencies. Investors are increasingly using DM currencies as funders to capture attractive carry in select EMs like South Africa (precious metals), Mexico (stable carry), and Hungary (improving fundamentals).

For investors looking to gain exposure to the precious metals rally within liquid emerging markets, South Africa is a standout. As a major precious metals exporter and energy importer, its terms of trade are rising sharply, making the rand a unique proxy for themes like the rise in gold.

Despite gold's significant volatility, G10 FX markets remained stable. This is because the historically strong relationship between FX and the gold-oil ratio has broken down this year. FX markets did not react to gold's earlier run-up, so they similarly ignored its recent sharp decline.

J.P. Morgan expects gold to continue rallying while traditional haven currencies like the Yen and Swiss Franc weaken. The firm notes that option markets are not priced for this divergence, creating a value opportunity for traders to position for gold's relative strength against these specific fiat currencies.

For 50 years, commodity prices moved together, driven by synchronized global demand. J.P. Morgan identifies a breakdown of this trend since 2024, dubbing it the 'crocodile cycle,' where supply-side factors cause metals to outperform while energy underperforms, creating a widening gap like a crocodile's mouth.

A bearish Canadian dollar (CAD) position can act as a superior proxy for a bearish US dollar (USD) view. It provides insulation against temporary USD rallies (as USD/CAD rises) and offers better carry efficiency due to the Bank of Canada's dovish stance, making it a lower-beta, potentially higher-return strategy.

Despite strong price performance in commodities like copper and precious metals, the currencies of key EM exporting countries have not reacted as strongly as they should. This disconnect suggests that the 'terms of trade' theme is underpriced in the FX market, indicating potential valuation upside for these currencies.