Central banks scramble to combat falling oil

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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

ABOUT THE AUTHOR
Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 16 years he has been based in London writing about funds and investments . From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope.

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