FX Weekly
Group Economics Macro & Financial Markets Research
18 February 2016
Oil recovery supports sentiment Georgette Boele Co-ordinator FX & Precious Metals Strategy Tel: +31 20 629 7789 georgette.boele@nl.abnamro.com
• Oil price recovery supports investor sentiment… • …resulting in a lower yen, euro and Swiss franc… • …and a higher dollar and currencies of oil exporting countries • Central bank reflation efforts to eventually support growth and sentiment Oil price recovery supports investor sentiment… This week there has been a positive spill-over effect from oil prices to other financial markets. The 15-20% rally in oil prices (since 11 February) has resulted in an overall improvement in sentiment in financial markets. As a result, currencies that performed well in a risk-off environment, such as Swiss franc, Japanese yen and the euro suffered. Moreover, currencies of oil-exporting currencies recovered substantially. The Russian ruble and the Mexican peso have both rallied by more than 5% since last Thursday. The surprise 50bp rate hike by Banxico accelerated the recovery of the peso.
Oil price and Oil currencies Oil price
USD/Oil FX index (inverse scale)
70
400
60
500
50 600 40 700
30 20 Jan 15
800 Apr 15
Jul 15
Brent oil price (lhs)
Oct 15
Jan 16
Oil FX index (rhs)
Source: Bloomberg, ABN AMRO Group Economics
Our energy analyst expects that oil prices are currently in the process of bottoming out. This process is often volatile in terms of price action on an intraday level. The crucial level to watch are the previous peaks in oil prices around 35-36 USD per barrel. If we break through this level, currencies of oil exporting countries are likely to advance sharply.
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