Commodity currencies and equity flows

This paper analyzes the relationship among the prices of natural resources, returns on equity and nominal exchange rates of the developed countries where primary commodities are an important share of exports: Australia, Canada and New Zealand. It is found that the portfolio-rebalancing motive of Hau and Rey [Hau, H., Rey, H., 2006. Exchange rates, equity prices, and capital flows. Review of Financial Studies 19 (1), 273–317.] is weaker for these countries. One possible explanation of this finding is that commodity prices due to their flexibility play a special role in the transmission of shocks by linking equity markets across countries and reducing the need for portfolio rebalancing.