Oil and commodity-linked currencies are underperforming in European morning trade, after the White House announced plans to release up to 1 million barrels of oil per day, for a total of 180 million barrels from the US Strategic Reserves as well as a worse-than -expected decrease in China’s manufacturing activity.
Crude oil slumped 4% ahead of today’s OPEC+ monthly meeting, putting pressure on the Norwegian krone (NOK), Canadian dollar (CAD), New Zealand dollar (NZD), and Australian dollar (AUD), which had been among the best-performing G-10 currencies in March.
The dollar is climbing again today, suggesting a deterioration of market risk sentiment as a consequence of mounting geopolitical worries, with France saying that Russia-Ukraine negotiations have failed to generate a breakthrough and Ukraine accusing Russia of employing phosphorus weapons in the Donetsk area. The White House also alleged that Putin’s aides misled him about the invasion’s progress and the sanctions’ effect.
Meanwhile, inflation data in Europe continues to surprise to the upside. Following Spain and Germany yesterday, France and Italy were the next to face inflation rates above expectations today.
The euro (EUR) pulled back to $1.112 from the $1.118 hit yesterday as Christine Lagarde, President of the European Central Bank, warned that the Eurozone would have weaker growth and higher inflation while emphasizing that the European Central Bank’s (ECB) baseline scenario does not include stagflation.
Today, markets will be focused on macro data, with the release of the Federal Reserve’s preferred inflation indicator, the personal consumption expenditure (PCE) index, in the United States. Also, the meeting of OPEC+ is taking place in Vienna. The major oil producers are not likely to increase their output above the 400,000 barrels per day they agreed to.
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Chart of the day: Commodity-linked currencies fell as crude tumbled
Forex markets today – March 31, 2022
- In London’s morning trade, the US Dollar Index (DXY) recovered to 98.2, up by 0.3% on the day. The euro (EUR) fell to $1,112, down 0.3% today, after gaining 0.6% yesterday. The British pound (GBP) held steady at $1,312.
- Safe-haven currencies, such as the Japanese yen (JPY) and the Swiss franc (CHF) were mostly unchanged versus the dollar, as rising risk aversion sustained the demand for havens.
- Oil-linked currencies are the big underperformers of the day due to lower crude prices. The Canadian dollar (CAD) fell 0.4%, while the Norwegian krone (NOK) tumbled 1.5% versus the USD, as Norges Bank announced sales of domestic currency as a result of large windfall gains from rising gas and oil prices in 2022, leading to NOK’s weakness.
- The commodity-sensitive Australian dollar (AUD) was 0.3% lower, while the high-beta New Zealand dollar (NZD) sunk 0.6%.
- Central Eastern European (CEE) currencies were also under pressure amid a deterioration in the risk sentiment. The Polish zloty (PLN) and the Hungarian forint (HUF) fell 0.5% and 0.7% respectively, versus the EUR. The Czech koruna (CZK) was marginally lower (-0.1%) against the single currency.
- The Russian ruble (RUB) is down 7% versus the USD.
- Emerging market (EM) currencies were little changed. The South African rand (ZAR) and the Mexican peso (MXN) edged 0.1% and 0.2% lower, respectively. In Asia, the Korean won (KRW) edged down by 0.2% while the Chinese yuan (CNH) rose by 0.2%. The Turkish lira (TRY) was flat.