The Moderating Role of Commodity Prices in the Relationships of Artificial Intelligence and Digitalization with FX Market Outcomes in G20 Countries

Abstract

This study examines whether commodity-price condition the effects of artificial intelligence (AI) capability and digitalization on foreign exchange (FX) market outcomes in G20 countries over 2015–2024. FX market performance is evaluated through volatility persistence (VP), price discovery efficiency (PDE), and market resilience and stability (MRS). Using a two-way fixed-effects panel framework with interaction terms, the study finds that AI capability and digitalization significantly reduce VP and improve PDE and MRS, whereas commodity-price shocks increase volatility persistence and weaken market efficiency and resilience. The negative AI × CP and DI × CP effects on VP, together with their positive effects on PDE and MRS, indicate that technological capability mitigates commodity-driven FX market instability. Marginal-effect analysis further shows that the benefits of AI and digitalization become stronger under higher commodity-price fluctuations. The findings remain robust across diagnostic tests and machine-learning validation using LASSO, Random Forest, SHAP analysis and Diebold–Mariano tests. Country-level results are generally strongest for India, Brazil, and Turkey, with China showing relatively strong performance for volatility persistence and market resilience and Mexico for price discovery efficiency. Comparatively weaker effects are observed in Russia, Saudi Arabia, and South Africa. Overall, the results suggest that AI capability and digital infrastructure improve information processing, market adjustment, and shock absorption, particularly when FX markets are exposed to elevated commodity-price uncertainty.