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Oil Producer’s Currencies Are Collapsing As Brent Breaks Below $40
Oil Producer’s Currencies Are Collapsing As Brent Breaks Below $40
Just when traders thought the bottom was in…
As Reuters notes, with lower oil prices likely to add to global deflationary concern and Chinese data doing little to improve sentiment, risk appetite remained fragile.
The Canadian currency fell 0.4 percent against the U.S. dollar, to C$1.3555. That was the U.S. dollar’s strongest level since mid-2004.Similarly the Norwegian crown fell a six-week low against the euro.
“If you are looking to play weak oil prices, you would want to sell the Canadian dollar and the Norwegian crown,” said Jeremy Stretch, head of currency strategy at CIBC World Markets. “With oil prices falling and some even talking about oil falling to $30 a barrel, revenues for these countries will take a beating and hence their currencies will remain under pressure.”
The Australian dollar fell 0.6 percent to $0.7220 AUD=D4 as this week’s tumble in iron ore and the latest Chinese data weighted on the currency’s woes.
Citi recommended that investors sell the Aussie through options. “The weakness in the Chinese economy will spill over to Australia through commodities demand as well as reduced demand for the Australian dollar via reserves and other channels. This should leave it vulnerable to an eventual leg higher in the dollar,” they said.
Charts: Bloomberg
With the oil price collapse accelerating (Brent just dropped below $40 for the first time since Feb 2009), the currencies of major oil-exporting nations – such as the Canadian dollar and Norwegian crown – are plunging…
The Crisis Is Spreading: China, Australia, Brazil, Canada, Sweden…
The Crisis Is Spreading: China, Australia, Brazil, Canada, Sweden…
Earlier today, we posted an excerpt from IceCap Asset Management’s latest letter to investors focusing on the farce that is the Greek bailout #3, which can be summarized simply by the following table…
… and Keith Dicker’s assessment which was that “for Greece, it’s mathematically impossible to repay its debt” and that the Greek “economy continues to plummet to deeper depths and is now -33% less than where it was in 2008.”
But the truth is that for all the endless drama, Dicker continues, “the Greek debt crisis isn’t THE crisis. Rather it is simply a symptom of a much larger global debt crisis.”
The problem is that the “larger global debt crisis” is finally metastasizing and spreading to more places, all of which are large enough that they cannot be simply swept under the rug, like Greece.
* * *
IceCap’s Keith Dicker continues:
We’ve written before that governments all around the world have borrowed too much money and the weight of these debts are choking economic growth.
And to make matters worse – these very same governments and their central banks have implemented various plans that have only made matters worse.
Our view has not changed – the global debt crisis has escalated to a point where the government bond bubble has inflated itself to become the mother of all bubbles. It’s going to burst, and when it does it wont be pretty.
Further evidence to support our view is as follows:
Canada – the collapse in oil and commodity markets has pushed the country into recession and the Canadian Dollar to decline to levels lower than that reached during the 2008 crisis.
Oil dependent provinces Alberta and Newfoundland remain in deep denial. Since everyone in these provinces have only ever experienced a booming oil market, many naively believe things will bounce back – and quickly.
Meanwhile, both Toronto and Vancouver housing markets also remain in denial as they continue to go gangbusters. Buyers today are likely buying at all-time highs.
…click on the above link to read the rest of the article…
This Is What Global Currency War Looks Like: A Complete History Of Recent FX Interventions
This Is What Global Currency War Looks Like: A Complete History Of Recent FX Interventions
After the dramatic collapse in the SNB’s defense of the Swiss Franc peg to the Euro, there was a period of relative FX peace in which few if any central banks engaged in outright currency intervention (aside from the countless rate cuts so far in 2015 in response to the soaring strength of the USD, which has risen dramatically over the past year for all the wrong reasons). Then China last night reminded us what happens when in a centrally-planned world one or more markets take too great advantage of relative FX differentials, in this case Japan, whose Yen plunged from USDJPY 80 to 125, and the Euro, which tumbled from EURUSD 1.40 to just above parity.
Now, it’s China’s turn.
But as we pointed out before, FX interventions never take place in a vacuum, and especially during periods of rising dollar strength, when the entire FX world, and especially exporters and mercantilists, go berserk.
Furthermore as Stone McCarthy notes, “this is the sort of “international development” that the Fed will need to keep an eye on and assess as conditions align for the start of policy normalization.” The reason is simple: what China just did could make a rate hike impossible as multinational US corporations will be slammed with a double whammy of soaring dollar and sliding CNY, making US exports that much tougher. And as we won’t tire of repeating, the Fed can not print trade.
And just to help remind readers of what happens when the entire world engages in wholesale currency war, here is a complete list of all the recent FX interventions, courtesy of Stone McCarthy.
Summary of Recent FX Interventions:
The last period of any significant Fed interventions in foreign exchange markets was during 1994-1995 when the dollar reached all time lows against what were then the benchmark currencies of the Japanese yen and German deutsche mark, and the period of the Mexican Peso Crisis. After that, it was acting to defend the value of the yen and new-minted euro.
…click on the above link to read the rest of the article…
Australian dollar skids to six-year low after RBA shock
Australian dollar skids to six-year low after RBA shock
(Reuters) – The Australian and New Zealand dollars weakened further in early trade in Europe on Tuesday after a sell-off following the Reserve Bank of Australia’s surprise decision to cut interest rates.
The outlook for both Antipodean currencies has worsened in recent weeks with concerns about growth generating expectations of generally looser monetary policy, but the RBA’s decision still came as a shock to many.
Another burst lower as Europe came on line brought the Aussie’s losses on the day to more than 2 percent. It hit an almost 6-year low of $0.7635 while the kiwi fell 1.5 percent to $0.7185, its lowest since early 2011.
“Its a big move and I think any bounce should be sold into,” said Graham Davidson, a spot trader with National Australia Bank in London.
“Generally when the RBA move, they tend to cut a handful of times. The feeling is of aneconomy where there is no source of growth, almost of despair.”
…click on the above link to read the rest of the article…
Australian dollar plunges as rate cut bets rise, commodity prices sink
Australian dollar plunges as rate cut bets rise, commodity prices sink
The Australian dollar plunged again overnight, as falling commodity prices dragged it to a fresh five-and-a-half-year low.
The local currency fell as low as 77.17 US cents, as a combination of strong US data boosting the greenback and falling commodity prices hurting resources exporters, before bouncing back to 77.85 by 10:30am (AEDT).
The Aussie dollar has now lost the best part of 3 cents against the greenback over the past couple of days, after having rallied on Wednesday afternoon due to higher-than-expected Australian inflation figures.
While US dollar strength has played its part, the Commonwealth Bank’s chief currency and rate strategist Richard Grace told ABC News Online that price slides for copper and other metals weighed more.
“All the commodity currencies fell last night – that is the New Zealand dollar, Canadian dollar, Australian dollar – so they fell much more than the European currencies.”
The other major factor behind the Aussie dollar’s rapid decline has been an article from Herald Sun economics columnist Terry McCrann saying that a Reserve Bank rate cut next week is all but certain.
…click on the above link to read the rest of the article…
