Central banks scramble to combat falling oil

Related Content Related Video Related Articles

The monetary tightening from the RCB made no real impression on the ruble yesterday because oil is continuing to decline. Until the oil markets find a floor, the ruble will remain under pressure and moves from the RCB to rebalance the currency will be largely ignored. The unfortunate news for the RCB is that it’s likely that by the time the oil markets find a floor, the Russian economy will be approaching a recession and the ruble will further crumble.

It is not only these two central banks who are taking drastic action to alleviate the influence of the woeful oil price on their economies. The Royal Bank of Canada (RBC) announced only a day previously that lower commodity prices will be negative for Canada. This weakened the CAD, with the USDCAD since advancing to a fresh five-year high at 1.1549. I am not sure if the RBC will ease policy on the back of lower commodity prices, because it was previously under pressure to raise rates. What will probably happen is that the central bank will continue to adopt the same neutral stance for a prolonged period. The comments can also be seen as a warning to the markets that the Canadian economy is also going to suffer from lower oil prices, which is music to the ears of traders as it is expected the CAD will devalue as well.

…Lower oil prices are going to have a long-lasting impact on many economies and bearish currency inspiring moves from central banks are likely to become the new norm.

 

Jameel Ahmad is chief market analyst for FXTM

preloader
Close Window
View the Magazine





You need to fill all required fields!