Commodity Currencies in the aftermath of OPEC

Commodity Currencies

Commodity currencies have been a key source of focus throughout the week as markets awaited the latest OPEC announcement and whether or not the cartel would take action in light of the recent slide in oil prices. However, heading into the announcement it became more apparent that no such action was going to be taken and the bodies ceiling was going to be kept in place, which subsequently weighed on oil prices and filtered through to FX markets by weighing on commodity-related currencies notably, NOK, CAD, AUD and MXN. Despite some analysts suggesting that a bulk of the move for oil prices had been priced in ahead of the announcement, when OPEC confirmed they are to make no changes to the ceiling, oil prices fell off a cliff, with WTI seeing the week out south of the USD 70.00bbl level. This placed further weight on the aforementioned currencies, with NOK printing a 5yr low against the EUR, USD/CAD breaking above 1.1400 and the MXN saw its biggest weekly fall since September. Looking ahead, these currencies will continue to be a source of attention as participants look to see whether or not the energy complex can find a floor.

EUR/USD

A host of positive data points, namely German IFO and a low unemployment number this week, helped by a strong ZEW number last week, have provided some modest reprieve for EUR throughout the week. Nonetheless, upside momentum has been capped by the heightened reality that an ECB QE programme is on the cards following the increasingly dovish rhetoric from the ECB and host of investment banks readjusting their QE expectations. However this sentiment was modestly soured by ECB source comments, which suggested the ECB prefer additional time to assess current measures. As a result the EUR has been offered some reprieve following last Fridays US data-inspired USD strength, although this was short-lived heading into the back-end of the week as the USD saw broad-based strength following the CPI-inspired weaker JPY. Looking ahead, the ECB rate decision will draw focus, particularly the press conference from ECB’s Draghi as analysts and participants pay close attention for further hints at a potential timeline for an ECB QE programme.