London 16/06/2016 - Commodities have started to be affected by the uncertainty around the UK's future in the EU, ANZ said.
While the direct impact of a Brexit is unlikely to damage commodity demand, a flight to safety by investors could see the dollar strengthen, driving weakness in commodity markets, the bank said in a note on Thursday.
"While the impact may be temporary, losses in commodities could be steep," it said. "This should keep commodity prices subdued in the short term. However, the still broadly positive fundamentals and a more dovish Fed should keep the downside limited."
In the aftermath of the June FOMC meeting, which saw no change to the Fed fund rate, the market is now highly sceptical that the US central bank will cut rates this year.
Risk aversion in recent days has seen commodity prices come under pressure, ANZ noted. Brent crude oil has fallen seven percent over the past week and is now back below $50 per barrel despite positive fundamentals such as supply disruptions.
Industrial metals, "always a harbinger of global risk aversion", have been weak for the past six months.
Until now, the impact of currency moves has been felt mostly in precious metals. The inverse correlation between gold and the dollar is currently around 52 percent, it noted.
Industrial metals are not far behind at 47 percent. But in the case of copper, this strong inverse correlation has been weakening as fundamentals have stabilised, it said.
Meanwhile, oil has a relatively low inverse correlation with the dollar at around 27 percent. This has changed dramatically over the past three years - previously it was more similar to gold and copper, the bank noted.
This is probably for fundamental reasons during that period as well as the relatively high level of demand consumed in dollar dominated regions, it added.
"This could all be irrelevant if risk aversion hits global markets," ANZ said. "Commodities would likely to be sold off as investors [seek] safe-haven assets if the UK votes to leave the EU."
Gold is one such commodity that should find support under such scenario - the bank sees gold moving towards $1,400 per ounce in the event of Brexit.
"However, once volatility dissipates, we expect the macro headwinds to be positive for commodity markets," it added.
(Editing by Mark Shaw)