rahul.khanna's picture

Which three currencies will be worst affected by the current oil decline?

Oil price adds to woes of deteriorating global economy, commodities bloc already suffering the brunt of slowing global demand. However, currencies to be worst affected going forward will be RUB, CAD & NOK.

RUB is especially the worst affected with falling oil prices & increasing cost of imports (due to sanctions).  An official of the Finance Ministry has said that falling oil prices will reduce balance of payments surplus by equivalent of almost 4% the GDP.  This is likely to continue with OPEC countries rift widening- Middle East countries competing for the market share in the world economy by keeping oil supply despite falling demand. RUB is being heavily bought by the central bank, but with dwindling EUR & USD reserves, keeping it from falling further will be a tough ask.

CAD, RUB, NOK & Crude Oil vs USD (Click on the chart to enlarge)

CAD is slightly better off due to improving domestic picture as recently shown by positive Canadian unemployment but if oil continues to tumble and growth numbers do not exceed expectations, we may see a further fall (especially vulnerable if oil below 80 level). CADJPY is our preferred currency pair to short which we recommended a few days ago on the back of falling oil prices and Japan signaling doubt over further easing asset purchases.

NOK is also likely to weaken further vs. USD as oil market worsens. Inflation rate of 2.1% (exp 2.4%) had also disappointed last Friday, emphasizing Central Bank Governor Olsen statement from earlier last month that the interest rate may be higher than needed.