Economy

Oil Slump Hurts Currencies From Norway to Brazil as Growth Slows

BloombergBusiness
20/07/2015 19:45
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Crude oil’s worst run in four months is hurting more than just commodity traders.

Currencies from the Norwegian krone to Brazil’s real are tumbling as investors revise economic growth expectations for petroleum-exporting nations. Mexico’s peso slumped to its weakest since a 1993 revaluation, while the Canadian dollar fell to a six-year low.

“It is oil today,” Greg Anderson, Bank of Montreal’s global head of foreign-exchange strategy, said by phone from New York. “The economies in these countries have slowed down enough that they’re cutting interest rates, so now it’s about that, in addition to commodity-price weakness.”

The Norwegian krone led losses by commodity currencies, sliding 0.6 percent to 8.2236 per dollar as of 2:30 p.m. in New York. Brazil’s real declined 0.2 percent to 3.1955 per dollar, approaching its lowest since March.

Oil fell below $50 a barrel in New York for the first time since April 6. It’s declined for the past three weeks, the longest streak of losses since the period ending March 13.

Rate Cuts

Commodity producers are having a tough time as a glut of supply coincides with declining demand. Prices for resources including crude oil, gold, iron ore and milk have slumped in recent weeks, with a Bloomberg measure of commodity prices declining to its lowest in more than 13 years Monday.

That’s prompted policy makers including those in Norway and most recently Canada to lower interest rates in an attempt to bolster alternative sources of growth.

Canada’s dollar, known as the loonie for the image of the aquatic bird on its C$1 coin, slumped past C$1.30 per dollar for the first time since 2009 last week after the Bank of Canada reduced its benchmark rate to 0.5 percent.

“We have a negative view on the commodity complex,” Mark McCormick, a foreign-exchange strategist at Credit Agricole SA, said by phone from New York. “What we’re seeing here is these currencies are fundamentally overvalued, given the shift in terms of trade.”

Monetary policy in resource-rich nations is diverging from that in the U.S., where the Federal Reserve is moving toward raising rates for the first time since 2006.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 of it major peers, advanced to its highest level since April 13.

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