A near-$2 rise in the price of oil supported the so-called ‘commodities currencies’ on Friday, many of which gained close to a percent against the US dollar and made respectable gains against the euro and Japanese yen.
Oil’s 3.9% rise to $48.74 per barrel (NYMEX crude futures, September delivery) followed news that US and Canadian oil drillers had cut active rigs for the second week in the last three. Oil also benefitted from a weaker dollar, something which is normally associated with commodities strength. Oil’s rally on Friday represents its second best one-day performance since December of last year.
Earlier this week, oil had failed to rally despite data showing a steep weekly fall in US inventories of 8.9 million barrels. Friday appeared to mark a short-term capitulation by the oil bears.
As oil climbed, so did the ‘petro-currencies’, most notably the Canadian dollar, Norwegian krone and Brazilian real, which all had a good day.
Canada’s currency rises along with oil because Canada has the world’s third largest oil reserves and is the world’s fourth largest oil exporter. Strength in the ‘loonie’ pushed USD/CAD back below 1.26 (1.2582).
Norway’s economy, and consequently the value of the Norwegian krone, is heavily reliant on oil and gas prices since these commodities make up nearly half of the country’s total exports. The krone had its best day in 3 ½ weeks on Friday, forcing USD/NOK to 7.9 and within striking distance of August’s low (krone high) at 7.85, a break of which would take the krone to its strongest level in 2 years.
Although crude petroleum products are only third in the list of Brazil’s top exports (behind soybeans and iron ore), the Brazilian real has for many years been closely correlated with oil prices. USD/BRL fell to 3.146 on Friday and should fall to 3.0 in the coming months according to a forecast this month by BNP Paribas’ chief Latin America strategist, Marcelo Carvalho.
Oil’s rise was supportive of commodities in general, and as commodities like iron ore and copper rose in tandem with ‘black gold’, albeit to much lesser extents, currencies which aren’t necessarily oil driven but are heavily dependent on commodities in a broader sense, such as the Australian dollar and South African rand, climbed too.
The Australian dollar rose to 0.7925 and looks to set test 0.8 again next week – a level it rejected probes through on July 27th and August 1st. Despite rallies close to and above 0.805 on those days, each time the Aussie moved swiftly back below 0.8 and closed down on the day.
USD/ZAR fell to 13.138. Significant political uncertainty prevails in South Africa, with the country’s president, Jacob Zuma, surviving yet another motion of no confidence on August 8th.
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