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

All three currencies we recommended (13 October) to be affected badly – RUB, NOK and CAD weakened as oil took a hit. We take a fresh look. (Previous article here)

As we stand now, RUB has gained slightly on the back of a brief bounce in oil due to political concerns in the Middle East and Ukraine. But the fact remains that the Saudis will continue to provide a decent amount of supply around $85-$90 a barrel. And the US are also keen to hurt Russia economically. We see limited upside for oil, hence RUB, given oil and gas make up to 70% of Russia’s exports and no amount of central bank measures will help if oil remains weak.

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NOK today jumped on the back of an unexpected rise in the inflation rate in October but a month ago we recommended selling NOK due to dovish remarks by the Central Bank and falling oil prices. We are suggesting another sell recommendation on NOK as it looks expensive. Growth concerns, which have a lot riding on oil prices, remain, and this is more likely to drive Norges Bank policy.

CAD was another currency we recommended to sell.  We are now seeing some strength similar to NOK, albeit on the back of dramatic drop in unemployment. CAD may be the least vulnerable as rising demand in US for Canadian exports may provide CAD with some support, but weak data from the US (and Canada) and failing oil prices maybe the trigger for more losses.