Exporter Currencies Slide as Krone Hits 2002 Low on Oil Weakness

U.S. Dollar, Global Politics Crush Commodities
  • South Africa's rand slides to record, loonie at 11-year low
  • Brent crude falls below $40 a barrel for first time since '09

The oil rout is back and the currencies of commodity-exporting nations are again feeling the pain.

Norway’s krone paced declines, tumbling to its weakest since April 2002 against the dollar as crude traded near its cheapest in almost seven years. Canada’s dollar slumped for a fourth day, even as Bank of Canada Governor Stephen Poloz said policy makers still have tools to spur growth.

Commodity prices have fallen 24 percent this year, the most since 2008, as a glut in supply meets slowing demand for raw materials amid patchy global growth. The Bloomberg Commodity Index tumbled to the lowest since 1999 on Tuesday and Brent crude slumped below $40 a barrel for the first time since 2009.

“It’s a direct effect of lower commodity prices,” Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada, said from London. “Commodities themselves have become unusually strongly correlated with each other and that tends to bond the commodity currencies together, even when it’s a shock specific to one sector.”

Norway’s krone lost 1.5 percent to 8.7899 per dollar as of 5 p.m. in New York, touching a 13 1/2-year low. It fell to the lowest since 1992 against the Swedish krona, and lost 2 percent to 9.5755 per euro. RBC’s Cole is reworking the bank’s forecast for the euro-krone after the Norwegian currency fell through a 9.50 target, he said.

Canada’s currency weakened 0.6 percent to C$1.3585 per U.S. dollar, after touching C$1.3622, the lowest since June 2004.

Fed Outlook

Commodities followed petroleum down, weighing on Australia’s dollar, which extended its biggest loss in a month, and South Africa’s rand, which slid to a record. Bank of America Corp. sees room for further commodity weakness, with Michael Hartnett, the bank’s chief investment strategist, saying “we still think that underweight is the right message” at a press briefing in New York on Tuesday.

Speculation the Federal Reserve will raise interest rates next week is also undermining commodity currencies by boosting the dollar.

“With the Fed rate hike looming, that’s obviously going to put some emerging markets under strain and most likely keep the pressure on commodity prices,” said Peter Dragicevich, a foreign-exchange strategist at Commonwealth Bank of Australia in London.

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