This paper examines the relation between high-yield currencies and commodity prices. We propose a smooth transition-structural vector error correction model that incorporates commodity price indices, nominal exchange rates, and macroeconomic factors. Our analysis shows that unexpected decreases in commodity prices depreciate currencies in commodity-exporting countries, but only during episodes of high funding illiquidity, financial uncertainty, and currency volatility. Importantly, this asymmetric effect arises from changes in financial conditions rather than in the business cycle. Moreover, we find that commodity price shocks immediately affect these currencies, while the dynamics of the currency response also depend on how a country’s macroeconomic fundamentals adjust to such shocks. Overall, this paper helps explain the severe depreciation of high-yield currencies in periods of financial distress, thus contributing to our comprehension of carry trade reversals.