Three major commodity currencies took off first, with the market betting that the global economy is about to enter a tightening cycle.

As traders place bets that global monetary policy will shift from easing to tightening, the Australian dollar, Norwegian krone, and New Zealand dollar are significantly outperforming other major currencies within the year. Since the beginning of the year, the Australian dollar has risen by over 6% against the US dollar, reaching a near three-year high. Earlier this month, the Reserve Bank of Australia announced a 25 basis point increase in the benchmark interest rate to 3.85%, marking the first rate hike in over two years. The RBA explained that inflation in the country is expected to remain above the target range of 2% to 3% for some time. Many analysts believe this is the beginning of a tightening cycle, with traders speculating that there may be one or two more rate hikes this year, each by 25 basis points. At the same time, the New Zealand dollar has risen by around 3.7% against the US dollar within the year, as the market anticipates the country's first rate hike in the coming months. The Norwegian krone has also risen by over 5%, as unexpectedly high inflation has led traders to bet on a possibility of a small rate hike in the first half of the year. These three currencies are the best performing among G10 currencies. Investors believe this reflects a significant shift in the interest rate cycle - major economies are gradually moving away from years of easing policies and focusing on controlling inflation. Mansoor Mohi-uddin, Chief Economist at Singapore Bank, commented that these countries are like "canaries in a coal mine", signaling a broader shift towards more "hawkish" policies. Higher interest rates will push exchange rates higher. Due to the high weight of commodities in the economies of Australia, New Zealand, and Norway, they are sometimes classified as "commodity currencies". Strategists note that recent increases in oil and copper prices, as well as other export commodity prices, have also supported these currencies. Oliver Levingston, a foreign exchange strategist at Merrill Lynch, pointed out that with Australian rates higher than those in the US for the first time since 2017, combined with gradual increases in commodity prices and a weakening US dollar, the Australian dollar may get "more tailwinds". Analysts also noted that concerns about the Trump administration's policy reversals and increasing US government debt have led investors to seek diversified dollar assets, benefiting the three commodity currencies. Currently, the support provided by the relatively higher US rates is gradually diminishing. Under pressure from Trump, most traders believe that the Fed's rate cut cycle is not over yet, and there may still be two to three rate cuts this year, each by 25 basis points. However, some believe that the Fed's rate cut cycle may end earlier, with JPMorgan and BNP Paribas both expecting the Fed to remain on hold this year. Some Fed officials have indicated in meeting minutes that "the possibility of raising rates again should not be ruled out". Furthermore, as market concerns about expanding deficits and increasing debt have grown, investors are favoring countries with relatively healthy public finances, boosting the Australian dollar, Norwegian krone, and New Zealand dollar, while dragging down the yen, US dollar, and British pound. This article was originally published on "Cai Liang She". GMTEight Edit: Liu Jiayin.