Why does a strengthening US Dollar Index (DXY) typically exert downward pressure on global commodity prices (such as crude oil, gold, and copper)?

[ A ]Because a stronger Dollar automatically doubles the physical volume of copper stored in mining warehouses.

[ B ]Because the US Federal Reserve legally bans all commodity futures trading whenever the Dollar index rises.

[ C ]Because global commodities are priced and settled in US Dollars; when the Dollar strengthens, commodities become more expensive for international buyers using non-dollar currencies, reducing global demand and lowering dollar prices.[ CORRECT ]

[ D ]Because commodity prices are legally pegged to the Japanese Yen under United Nations international treaties.

Takeaway

Option C is correct: Because global commodities are priced and settled in US Dollars; when the Dollar strengthens, commodities become more expensive for international buyers using non-dollar currencies, reducing global demand and lowering dollar prices.

Derivation

The US Dollar serves as the primary international invoicing and pricing currency for global commodities. The US Dollar Index (DXY) measures the dollar's value against a basket of six major currencies (Euro, Yen, Pound, Canadian Dollar, Swedish Krona, Swiss Franc). When the Dollar strengthens (DXY rises), purchasing dollar-denominated commodities becomes more costly in foreign local currencies. This dampens international consumption demand, pushing dollar-quoted commodity prices downward. Conversely, a weakening dollar makes commodities cheaper abroad, boosting prices. This tests currency-commodity dynamics. The common trap is assuming a direct positive correlation.

Why the others fail

A — Because a stronger Dollar automatically doubles the physical volume of copper stored in mining warehouses.

Currency exchange rates do not physically alter the physical mass or tonnage of metals stored in industrial warehouses.

B — Because the US Federal Reserve legally bans all commodity futures trading whenever the Dollar index rises.

Commodity exchanges trade freely across all currency cycles and are not suspended by central bank currency strength.

D — Because commodity prices are legally pegged to the Japanese Yen under United Nations international treaties.

Global commodities are predominantly quoted in US Dollars, not legally pegged to the Japanese Yen under UN treaties.