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Drop In Crude Prices To Keep Oil Producers' Currencies Weak

Drop In Crude Prices To Keep Oil Producers' Currencies Weak

Martin Essex, MSTA, Analyst

Talking Points

- The price of Brent crude oil has steadied in Europe Thursday but its sharp fall Wednesday has taken it below key support levels.

- That means continuing downward pressure on the currencies of oil-exporting countries like Norway, Russia and Canada.

- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for the week on the DailyFX Webinar Calendar.

Crude oil prices have steadied in Europe early Thursday but their dramatic drop Wednesday has taken them below key support levels, meaning downward pressure on the Norwegian Krone, Russian Ruble and Canadian Dollar could persist for some time to come.

Norway, Russia and Canada are all major oil producers so their currencies tend to move with oil prices, and the latest drop in crude could well hit them hard. As the daily chart below for Brent crude, the global benchmark, illustrates, it has now fallen below strong support from a rising trendline in place since early December last year.

Chart: Brent Crude Oil, Daily Timeframe (October 2016 to March 2017)

Drop In Crude Prices To Keep Oil Producers' Currencies Weak

While there has been no follow-through so far Thursday, there has also been little sign yet of a significant recovery from the drop prompted by a report from the American Petroleum Institute (API) that US crude inventories have surged to a record high, raising concerns that a global glut could persist even as the Organization of the Petroleum Exporting Countries (OPEC) tries to prop up prices with output cuts.

Chart: Brent Crude Oil, 5’ Timeframe (March 8/9)

Drop In Crude Prices To Keep Oil Producers' Currencies Weak

This plunge comes at a time when the NOK, RUB and CAD have all been weakening against the US Dollar as the markets prepare for a USD-positive series of interest rate increases by the Federal Reserve. Here, for example, is the Dollar strengthening against the Krone:

Chart: USDNOK Daily Timeframe (May 2016 – March 2017)

Drop In Crude Prices To Keep Oil Producers' Currencies Weak

That trend looks set to persist, barring an unexpected recovery in oil prices. Meanwhile, the rise in the price of crude has also hit the shares of BP and Royal Dutch Shell in London Thursday, and they too look set to fall further thanks to crude’s weakness.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

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