The Opec cartel’s decision to leave production unchanged played havoc with the currencies of oil producers on Thursday, forcing Nigeria’s central bank to defend its new level for the naira and sending Russia’s rouble to record lows against the dollar.
In the past month, both countries have been forced to abandon exchange rate policies that were proving an unsustainable drain on reserves.
The rouble has swung wildly in line with oil prices since the central bank accelerated a free float of the currency, with an average daily move against the dollar of more than 2 per cent in the past week.
It fell a further 2.5 per cent to trade at R48.61 to the dollar after Opec’s decision.
Traders said Nigeria’s central bank had sold dollars earlier in the day to keep the naira within a new trading band set in Tuesday’s 8 per cent devaluation.
Even the rock solid currency pegs of the biggest Gulf oil producers – whose vast reserves make them well able to withstand a period of lower oil prices – are coming under scrutiny.
Forward prices on the Saudi rial imply that investors expect the currency to weaken over the next 12 months – and while the change implied is a mere 0.1 per cent, it is still the biggest movement since the extremes of the global financial crisis last provoked debate over the peg.
The United Arab Emirates dirham also fell to its lowest level against the dollar in forwards markets on Thursday, thanks to a suggestion from an advisory body to the government that the central bank might want to keep the merits of the peg under periodic review.
The plunge in oil prices also took its toll on developed country currencies with the Canadian dollar falling 0.9 per cent to C$1.1341 against its US counterpart, and Norway’s krone – which has already shed around 12 per cent of its value against the dollar this year – down around 1.5 per cent to NKr6.9340.
Norway’s economy does not depend directly on oil revenues but oil investment has come to account for a much bigger share of GDP over the last decade, while the non-oil sector has become less competitive.
Analysts at Morgan Stanley say that, while the krone does not always trade in line with oil, “we are approaching levels where oil prices could start to affect the economy more significantly”.
Get alerts on Oil when a new story is published