The currencies of some of the world’s biggest crude exporters are breaking their historic relationship with the oil price.
The Canadian dollar has weakened, the Norwegian krone is little changed and the Russian ruble has strengthened just 4 per cent in the past three months even as the price of Brent crude has surged 17 per cent and West Texas oil 11 per cent. In commodity-rich Latin America, the 90-day correlation between currencies and oil turned negative last month for the first time since 2014.
Commodity currencies are typically more correlated with oil when it is falling because a decline in prices often indicates a drop in demand, which is disproportionately damaging to energy-dependent economies. The link rose during the 2015-16 oil price slump, but now that foreign exchange traders have adapted to the new normal of oil below US$60 a barrel, monetary policy and idiosyncratic factors have taken precedence for exchange-rate moves.
“Big movements in the commodity are associated with big movements in the terms of trade, which then should have currency consequences,” said Colin Harte, a London-based fund manager at BNP Paribas Asset Management. “Though people get excited about commodities being the dominant driver of the currency, the commodity only plays a part at certain times when there are big movements.”
Russian Ruble Inflows from investors lured by one of the highest real yields among developing nations have trumped oil as the most important driver of the ruble this year. An expected 25 basis-point rate cut this week to 8.25 percent is unlikely to dent its carry-trade appeal, according to Anders Svendsen, an analyst at Nordea Bank A/S in Copenhagen, who thinks it will take significant rate cuts for the oil correlation to rise.
The currencies of some of the world’s biggest crude exporters are breaking their historic relationship with the oil price.
The Canadian dollar has weakened, the Norwegian krone is little changed and the Russian ruble has strengthened just 4 per cent in the past three months even as the price of Brent crude has surged 17 per cent and West Texas oil 11 per cent. In commodity-rich Latin America, the 90-day correlation between currencies and oil turned negative last month for the first time since 2014.
Commodity currencies are typically more correlated with oil when it is falling because a decline in prices often indicates a drop in demand, which is disproportionately damaging to energy-dependent economies. The link rose during the 2015-16 oil price slump, but now that foreign exchange traders have adapted to the new normal of oil below US$60 a barrel, monetary policy and idiosyncratic factors have taken precedence for exchange-rate moves.
“Big movements in the commodity are associated with big movements in the terms of trade, which then should have currency consequences,” said Colin Harte, a London-based fund manager at BNP Paribas Asset Management. “Though people get excited about commodities being the dominant driver of the currency, the commodity only plays a part at certain times when there are big movements.”
Russian RubleInflows from investors lured by one of the highest real yields among developing nations have trumped oil as the most important driver of the ruble this year. An expected 25 basis-point rate cut this week to 8.25 percent is unlikely to dent its carry-trade appeal, according to Anders Svendsen, an analyst at Nordea Bank A/S in Copenhagen, who thinks it will take significant rate cuts for the oil correlation to rise.