Commodity price shocks related to the war in Ukraine and exchange rates of commodity exporters and importers

The war in Ukraine and new sanctions imposed on Russia have affected commodity prices and induced historic moves in exchange rate markets. In this paper, we examine the impact of commodity price shocks related to the war in Ukraine on three currencies (Canadian dollar, euro, and Japanese yen). Using four-hour price data for three commodities (wheat, crude oil, and natural gas) and two exchange rates (EUR/CAD and CAD/JPY) from February 1 to April 30, 2022, the analysis based on the quantile autoregressive distributed lag (ARDL) model suggests a long-run association between higher commodity prices and appreciation of the Canadian dollar against the euro and the yen. Furthermore, the dynamic simulated ARDL model shows a positive impact of commodity price shocks on the value of the Canadian dollar against the euro and the yen, which demonstrates the robustness of our findings. Oil price shocks have almost the same impact on the depreciation of the euro and the yen. The driving forces in the depreciation of the euro and the yen, in addition to higher oil prices, are higher gas prices and higher wheat prices, respectively.