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I was listening to a major bank FX analyst this morning react to China’s latest 25 basis point rate hike. He concluded his analysis by saying China (along with everyone else) is behind the curve on interest rate policy. I suppose he says that everyone is behind the curve because of high commodity and food prices.

In his eyes, China’s rate hike today is not substantial enough to make a real dent. And of course, the US is the most behind the curve.

Though it is another small step in the right direction, we will agree with the former and point you back to our January 27th publication. And there are so many ways to splice the latter …

The US dollar constantly battles the idea that the Federal Reserve is behind the curve on interest rate policy. But at this stage in the game, what are they going to do – fight US inflation? There is no US inflation (according to the Fed’s measure, anyway).

But some will argue the Fed is responsible for the speculation underpinning rising commodity prices. Then, in this case, they are ahead of the curve as the developing world battles rising prices in their overheated economies, with the only resolution being a setback in global growth.

Let us not forget what Mervyn King recently admitted in his surprisingly candid comments about the rock and the hard place in which the Bank of England currently is wedged:

“The idea that the MPC could have preserved living standards, by preventing the rise in inflation without also pushing down earnings growth further, is wishful thinking.”

“*U+npleasant though it is, the Monetary Policy Committee neither can, nor should try to, prevent the squeeze in living standards, half of which is coming in the form of higher prices and half in earnings rising at a rate lower than normal.”

Now, we have certainly condoned tough love from central bankers … particularly criticizing those decisions to keep interest rates abnormally low. That is because we are believers that overly accommodative monetary policy breeds mal-investment and inefficiencies in an economy over time.

But we would argue this time in their favor — they’re not yet in a position where higher rates make sense — if perhaps a major hiccup is on the horizon as global growth takes a hit from a higher cost of living and a need to stamp down on growth in developing economies.

If we’re wrong, however, then we must turn to the commodity currencies. If the world has skirted a relapse into global recession, then maybe banks like the Fed and BOE are behind the curve despite the predicament they face on the domestic front. But there are countries that are much less behind the curve and thus bear much more attractive currencies.

The aforementioned FX analyst believes commodity currencies are the safest bet in this time of rising commodity prices. Yes. That is a logical conclusion. As the US, UK, Eurozone and Japan sit at varying distances behind the curve, and China keeps playing their usual games while sustaining growth, then looking to commodity currencies makes complete sense.

Our February Currency Investor publication, due out next week, will dig deeply into the commodity currencies and offer the potential scenarios that will ultimately drive these currencies and their underlying economies … higher or lower. China is critical and so are the basic supply/demand dynamics in certain commodities. Progress in developed economies is also still very important at this stage. There are a lot of variables to consider.