Top 3 currencies impacted by the Coronavirus and how to trade them

As oil prices crash and the Coronavirus (COVID-19) crisis grows, we examine 3 currency pairs potentially impacted by this volatility.

Demand side disruption

As with any black swan event – the implications of the Coronavirus (COVID-19) crisis have thus far been wild and unexpected.

The first impact though was an obvious one: as China rushed to curtail the spread of the virus, its industrial activity ground to a halt. Amongst other things, this caused oil prices and oil demand to fall sharply.

From 20 January to 5 March, Crude fell significantly, dropping from ~US$65 per barrel to ~US$50 per barrel.

As a consequence of all this, the International Energy Agency cut their quarterly and yearly forecasts, saying ‘we have cut our 2020 growth forecast by 365 kb/d to 825 kb/d, the lowest since 2011.’

Supply side disruption

The second consequence however was both less predictable and arguably more dramatic.

As an attempt to keep prices stable, OPEC – the Organization of the Petroleum Exporting Countries – last week pushed group members and non-members to cut production.

Russia, a key non-OPEC member which produces roughly 12% of the world’s oil, said no to any such cuts. Oil prices fell ~10% in response to that move.

Things went a step further on Monday, as Saudi Arabia kick-started an all-out price war.

Here, Bloomberg reported that:

‘Saudi Arabia escalated its oil price war with Russia on Tuesday, with its state-owned company pledging to supply a record 12.3 million barrels a day next month, a massive production hike to flood the market.’

For reference, in February Saudi Arabia produced approximately 9.7 million barrels of oil per day.

In response, the price of oil cratered: with crude falling as much as 34%, to a low of US$27.34 per barrel.

Amongst all this Russia has retained its composure, with Russia’s Energy Minister Alexander Novak saying:

‘The Russian oil industry has a quality resource base and enough financial resilience to remain competitive at any forecast price level, and to keep its market share.’

Top 3 currencies most impacted by the Coronavirus

Though these still-unfolding events have caused extreme volatility in commodity, equity and currency markets; for risk tolerant traders and investors there remains a number of opportunities to potentially profit.

Indeed, given the Coronavirus’s impact both directly and indirectly on the oil market over the last month – below we briefly outline the ‘top three currencies’ with a strong sensitivity to the price of oil.

USD/RUB – the Russian Ruble

Since Vladimir Putin came to power at the turn of the century, he has turned Russia into a global energy superpower, with a particular focus on oil and gas exports.

All up, from January to November in 2019, Russia exported US$381.5 billion of goods, of which a significant proportion was derived from oil.

Specifically, statistics from 2018 illustrate the Eastern European giant’s reliance upon natural resources: Russia's crude oil exports topped US$129 billion, processed petroleum oil exports reached US$78.1 billion, and petroleum gas exports stood at US$7.5 billion, according to World's Top Exports.

USD/NOK – the Norwegian Krone

Like Russia, Norway’s economic reliance upon its natural crude oil reserves has led to many to view its national currency, the Norwegian Krone, as a ‘petrocurrency’.

Illustrating this reliance, in CY19 Norway's exports topped 903 billion NOK, of which a staggering 247.8 billion NOK came from crude oil exports – or more than 25% of the country’s total exports, according to Statistics Norway.

USD/CAD – the Canadian Dollar

Like Russia and Norway, Canada leans heavily upon its crude oil exports, with Shaun Osborne, MD and Chief Currency Strategist at Scotiabank, saying that the Canadian Dollar is typically ‘positively correlated to the price of crude.’

In CY19 Canada exported a total of US$446.5 billion worth of goods, of which a significant US$68 billion (+1.7% YoY) was made up of crude oil exports, according to World's Top Exports.

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