Petrocurrencies are breaking away from their traditional tight link to oil prices, but all it would take for this link to return is for prices to fall bellow their current range. This seems to be the general consensus among bankers interviewed by Bloomberg’s Natasha Doff and Anna Andrianova.
The change is especially obvious with the Russian ruble, the Norwegian crown, and the Canadian dollar. The ruble’s response to the recent string of gains in oil prices was muted; the Norwegian crown barely batted an eyelash at latest price changes; and the Canadian dollar has weakened despite the oil price movements.
It seems there are two factors determining this break between the most-traded commodity in the world and its largest producers: one, interest rates; and two, the price range of oil. Russia, for example, offers high real yields for investors, which has made the ruble more attractive despite weaker oil prices over the last two years. Even a recent interest rate cut of 25 basis points to 8.25 percent didn’t discourage forex traders from buying the Russian currency, Doff and Andrianova note.
The situation isn’t much different in Canada: Ever since June, when the central bank raised interest rates for the first time in seven years, the correlation between the Canadian dollar and crude oil has weakened. This, analysts note, highlights the growing importance of central bank policy compared with the significance of the oil industry for the state budget in each of these countries.
Norway is awaiting an interest rate increase, but it has booked stronger-than-expected economic growth, which has helped weaken the link between the crown and oil. Still, like the ruble and the Canadian dollar, the crown is likely to suffer if a sharp drop occurs in oil prices, as all commodity-related currencies are more sensitive to downward movements in the commodity’s price than to price increases.
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