Commodity-Exporter Currencies Advance as Crude Oil Prices Surge

May 16, 2016 Bloomberg

By: Lananh Nguyen & Rachel Evans

The currencies of commodity-exporting countries gained on Monday as crude prices surged to a six-month high.

The Brazilian real, Norwegian krone and Canadian dollar advanced against the U.S. currency as oil gained more than 2 percent. The commodity rallied after Goldman Sachs Group Inc. said the global oil market has flipped to a deficit sooner than it expected.

Oil has climbed for five of the last six weeks amid signs production cuts will ease a global glut that helped push the commodity to a 12-year low in January. That’s boosting currencies of oil exporters that have also rallied as traders reduce expectations for interest-rate increases from the Federal Reserve, and instead seek yield overseas.

“The market is looking at a tighter supply-demand balance,” and that’s boosting the currencies of crude producers, said Karl Schamotta, director of foreign-exchange research and strategy in Toronto at Cambridge Global Payments, which hedges currencies for companies.

The real climbed 0.9 percent against the greenback as of 5 p.m. in New York on Monday, while the krone and Canada’s dollar both rose 0.4 percent. The Bloomberg Commodity Index gained 0.8 percent. Australia’s dollar was little changed as of 7:50 a.m. in Tokyo on Tuesday, after advancing 0.3 percent the previous day.

Hedge funds and other large speculators turned the most bullish on the Canadian dollar since February 2013 last week, betting that the currency’s 7 percent rally this year is far from done. Forecasters disagree, predicting the loonie weaken fall 2 percent to C$1.32 per U.S. dollar by year-end.

“Oil stands out as the key mover, with West Texas Intermediate up nearly 2 percent, which is helping lift the commodity currencies,” James Rossiter, senior global strategist at TD Securities in London, said in a note on Monday.

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