Rouble fighting back as oil rallies

After receiving heavy punishment towards the end of last week, the Rouble is recovering losses following the increased optimism that a floor might have finally been located in the oil markets. The USDRUB has pulled back from 70.4486 to 66.2020 over the past day, with the Rouble strengthening as a result of the price of crude oil bouncing higher. The increased optimism that the aggressive selling in oil might be edging to a conclusion will provide the Central Bank of Russia (CBR) with welcome news, bearing in mind the CBR have been struggling to tame Rouble weakness since early December. The economic conditions remain heavily against the Russian economy and confirmation of a recession later this year will pressure the currency in the longer-term, however the present shift of momentum will at least ease some of the short-term pressures.

The bounce in oil has not only benefitted the Russian Rouble with the Norwegian Krone also advancing. After the Norwegian Krone weakened to close to a decade low against the USD at the end of last week, the USDNOK has pulled back from 7.7430 to 7.5990 since Monday. While it may be true that the increased optimism a floor for oil may have been found would provide breathing space for currencies that have been flattened, questions are still being asked whether the commodity is really making a comeback. The current outlook remains the same and there is an aggressive oversupply of the commodity in the markets. More signals of a possible production cut are needed, otherwise there will be a risk of a sudden reversal.

For the second successive day in a row, volatility in the EURUSD is low with the pair still consolidating around 1.13. The low volatility being seen in the pair is likely correlated to the focus of all attention still surrounding Greece, with there being less than four weeks to go until the conclusion of the nation’s current program of loans. The positive news is that tensions around the issue seem to be softening with most spectators open-minded to the idea that the new government in Greece has devised a plan away from erasing its €315 billion of foreign debt. Aside from Greece, industrial producer prices in the Eurozone contracted more than expected in December, showing that the deflation problems in Europe look likely to become even worse as readings get announced this month.

The GBPUSD dropped below 1.50 earlier in trading at 1.4988 with an above-forecast UK Construction PMI saving the pair from further losses. The construction PMI was announced 59.1, much higher than the 57.0 expected. Despite this, the GBPUSD has only rallied modestly with the current GBP negative sentiment preventing traders from purchasing the pound. Issues such as possible deflation in February makes investor attraction towards the pair very limited, with significant bounces most likely related to USD weakness. Traders could possibly be looking to sell rallies in the pair and the Cable dropping below 1.50 for the second time in as many days suggests to me that the pair has not found a bottom quite yet.

Following the unexpected interest rate cut from the Reserve Bank of Australia (RBA) during the early hours of Tuesday morning, the Aussie has continued to fall with the most recent five-and-a-half-year low being recorded at 0.7625. Even before the interest rate cut from the RBA, the valuation of the Australian Dollar was already tumbling at a rapid rate, with the move from the RBA further pushing the accelerator on the currency’s downward heading.