The currencies of some of the world’s largest oil exporters are now showing a weakening of their traditional historical dependence on oil quotes.
During the last 3 months, the Canadian dollar has weakened, the Norwegian krone remained almost flat, and the Russian ruble strengthened by only 4%, although Brent crude grew by 17% over this time, and the US WTI by 11%. In rich Latin America, the 90-day correlation between currencies and oil last month for the first time since 2014 went into the zone of negative values. As a rule, commodity currencies show a higher correlation with oil during the periods of black gold fall, as price cuts often indicate a weakening of demand, which causes disproportionate damage to economies oriented towards the energy sector. This dependence was especially strengthened during the collapse of oil quotations in 2015-16, but now, when currency traders adapted to the “new norm” – oil at $ 60 per barrel, monetary policy and non-systematic, idiosyncratic factors became more important factors for the dynamics of currencies.
As Colin Hart, stock manager of BNP Paribas Asset Management, comments, “although players are excited by the idea of raw materials as the main driving force of the currency, nevertheless, commodity assets play their role only at certain moments that are characterized by large-scale movements.”
This year, oil has come to the fore in the list of the most important ruble drivers, giving way to a factor such as the extremely attractive real yield for investors, one of the highest among the emerging economies. As Anders Svendsen, an analyst at Nordea Bank, comments, the expected reduction in the CBR rate by 25 bpts. up to 8.25% is unlikely to undermine the popularity of the ruble among the curry traders. According to the expert, the correlation between the Russian currency and oil will intensify only in the case of a very aggressive cycle of a rate cut. “Oil continues to be an important driver for the ruble, as Russia is one of the world’s largest exporters of raw materials,” confirms Petr Mathis, a strategist at Rabobank. “However, the degree of this dependence varies periodically. The ruble is less susceptible to the dynamics of oil quotations, when they go up, but if oil sharply becomes cheaper, it is more noticeable on the ruble. ”
Since the end of June, the correlation between the Canadian dollar and raw materials has weakened noticeably thanks to the first rate increase since 2010 by the Bank of Canada. The indicator of the 90-day correlation between the “lunis” and oil WTI is now at the lowest level in almost 3 years. However, according to Sean Osbourne, currency strategist of the Bank of Nova Scotia, this divergence reflects not a reduction in the role of the oil sector in the national economy, but rather a strengthening of the importance of the Central Bank’s policy. If oil suddenly breaks out of the range of $ 40- $ 60, in which it trades almost all year, it will again become one of the primary factors for the currency, the expert adds.
In recent months, investors’ interest in the krona has increased against the background of higher than expected growth rates of this Scandinavian economy, which helped to level out the vulnerability of the national currency before the sharp fluctuations in oil quotations. Nevertheless, the krona is unlikely to move much higher than the current levels, until the Central Bank of Norway does not implement the long-awaited rate hike, analysts at Danske Bank add, explaining that at this stage the kroon is more sensitive to lower oil prices than to their growth.
In this region, the gap between the dynamics of currencies and oil quotes has reached the most extreme values, and now their paths have diverged in opposite directions. As explained in Commerzbank, this year the priority themes here were geopolitics and monetary policy of the United States. The situation around NAFTA caused the volatility of the Mexican peso, and corruption scandals undermined interest in the Brazilian real. Venezuela is balancing on the brink of default, but high interest rates in several countries in the region have helped to soften the blow to national currencies thanks to capital inflows.