Commodity currencies plunge as oil price rout continues
08/Dec/2015 • Currency Updates•
The major G3 currencies were relatively quiet yesterday compared to the unprecedented scenes witnessed last Thursday following the underwhelming announcement from the European Central Bank.
The US Dollar recovered somewhat, having now regained around a third of its losses after last week’s ECB meeting. Traders continue to bet on a Federal Reserve interest rate increase, especially following the strong US labour report on Friday.
The US Dollar’s recovery was particularly felt against emerging market currencies, especially those of commodity-producing economies after the price of crude oil fell to a fresh six-year low at under $42 a barrel yesterday. This came after Friday’s OPEC meeting ended without an agreement on lower production.
As a result, oil-dependent economies saw their currencies tumble, with the Colombian Peso, Norwegian Krone, Russian Ruble, South African Rand and Canadian Dollar all experiencing losses in excess of 1% versus the Greenback.
Attention among Euro traders this morning will turn to the release of revised growth data for the third quarter, which is expected to confirm that the economy grew by 0.3% in the three months to September.
Meanwhile in the UK, manufacturing and industrial production this morning will be worth noting, as will the GDP estimate for the three months to November from NIESR at 3:00pm this afternoon.
Major currencies in detail:
The Pound dipped by 0.2% versus the US Dollar yesterday, and, following a late rally by the single currency, Sterling fell 0.15% versus the Euro.
Sterling dropped sharply as trading began for the week yesterday morning. Investors were clearly cautious in the lead up to an appearance from Governor of the Bank of England Mark Carney at the European Parliament Committee in the afternoon. However, as it turned out, Carney failed to touch on monetary policy, and as a result, the Pound traded within a very narrow band of the US Dollar throughout the rest of the day.
UK businesses will be closely watching the Bank of England on Thursday when the interest rate decision will be announced and releasing the minutes from its December MPC meeting. Investors will be looking to gain clues regarding the timing of a next UK rate hike, which is now not expected until the second half of next year.
The Euro ended only modestly lower versus the US Dollar yesterday (0.1%), still remaining at relatively lofty levels following the ECB announcement.
The latest industrial production data out of Germany was mostly disappointing. Output in the industrial sector expanded by just 0.2% in October, lower than the 0.7% growth that was expected by analysts.
Elsewhere, consumer confidence, as measured by Sentix, showed a moderate improvement in December, although came in slightly below expectations. The monthly index increased to 15.7 from 15.1 on optimism of an improvement in economic growth. This was, however, below the 17 expected.
Growth data this morning will be the only major economic release in the Eurozone this week, in what should be a slightly more subdued few days for the single currency following last week’s fireworks.
The US Dollar recovered yesterday, with the US Dollar Index rallying by 0.2%.
Economic data out of the US was relatively light on the ground. The latest labour market conditions index from the Fed dipped again, despite recent strong data we’ve seen out of the US labour market. The data, which takes into account 19 measures of labour market strength in the US, declined to 0.5 in November from 1.6 in October.
Meanwhile, Fed member Bullard claimed that inaccurate Fed forecasts of growth and unemployment had complicated the central bank’s decision-making.
With limited economic data out of the US today, traders will continue to focus on expectations for an interest rate hike at the next Fed meeting, which takes place in just over a week’s’ time.
Rest of the world
With oil prices tanking to their lowest level since the height of the financial crisis in 2009, sentiment for commodity currencies continued to wane.
The Canadian Dollar fell to an 11-year low, the Russian Ruble to its lowest level in three months, while the South African Rand dropped to another all-time low. Many businesses with exposure to these currencies are using this opportunity to implement hedging instruments and make the most of this market low.
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