KEY POINTS:
Global warming's side-effects, such as hurricanes and mudslides, have not greatly affected economies and investor returns ... yet.
But analysts suspect that might be about to change, and they are trying to anticipate it by building climate change's influence into their forecasts.
New Zealand is among the countries
that could be worst-hit, they say.
"Droughts, flooding and food shortages are consequences that can affect economies, and thus currency prices," said Michael Woolfolk, currency strategist with the Bank of New York.
Economic development tended to concentrate in temperate areas which were free of disease and had fresh water and arable land for agriculture.
"If changing climate leads to changes in where these factors occur, you change the location of economic output and population," he said.
The Kyoto Protocol, agreed at a 1997 UN conference, has been ratified by 165 countries, and aims to restrain global warming by reducing greenhouse gases emitted by developed countries.
The treaty affects 61.6 per cent of developed nations' total emissions but countries such as the United States and Australia have refused to sign it.
"If you put Kyoto in place, the US economy would knock down the value of the dollar because of slower US growth," said Craig Russell, senior foreign exchange strategist at ODL Securities in Chicago.
"US commerce relies on unrestricted use of resources."
At a UN climate conference in Nairobi this month, America reiterated its stance by rejecting pleas to cut emissions of greenhouse gases.
Other countries that rely on agriculture for much of their foreign exchange earnings could be bad currency bets if, as expected, rain patterns change as the planet warms.
More rain may make fields too wet for crops and livestock, while less precipitation may result in crop failures and dying livestock. Rising food prices may also stoke inflation.
"Agricultural currencies such as New Zealand's could take a hit if extreme weather prevents crops from growing and livestock from maturing," said Russell.
The New Zealand dollar is down 2.6 per cent against the US dollar this year.
New Zealand had a severe snowstorm in early spring, killing livestock on the same day hundreds of bushfires burned parts of southeast Australia.
Australia is enduring a five-year drought - some say the worst in 1000 years - with severe early season wildfires and record temperatures.
Australia is the world's third-largest wheat exporter but the drought has cut this year's wheat crop by more than 60 per cent to its smallest in 12 years, contributing to Chicago Board of Trade wheat prices rising to 10-year highs.
Australia's cities are starting to run out of water, and all have restrictions on water use.
The Australian dollar is up 4.6 per cent this year against the greenback, largely because of rising interest rates, and an economy bolstered by demand from China for its minerals.
The Canadian dollar may be a better bet longer term, as Canada may be able to supply water to the south-western US, which is also starting to suffer water supply problems.
- REUTERS