Currency and commodity return relationship under extreme geopolitical risks: Evidence from the invasion of Ukraine

Abstract

We examine the relationship between currency and commodity returns around the invasion of Ukraine in February 2022. We find that the expected positive contemporaneous relationship between currency and commodity returns reverses and becomes negative during this period of extreme geopolitical risks. In addition to commodity returns, currency returns around the invasion of Ukraine are significantly affected by geopolitical factors, particularly geographic distance to the war. Our results indicate that a war between two major commodity-exporting countries significantly affects global currency pricing.